J.P. Morgan Chase (JPM) -6.06%
JPM managed to squeak out positive fourth quarter earnings of seven cents a share after several one-time charges and gains, but CEO Jamie Dimon said the results were “very disappointing.” Without the gains, JPM lost 28 cents a share.
The addition of Washington Mutual was a definite positive for JPM’s fourth quarter, boosting income and resulting in one-time gains. JPM also indicated that deposits at WaMu were basically flat, which a huge positive since there was some concern that WaMu customers would move their assets in response to the bank’s failures. But the acquisition wasn’t all warm and fuzzy. In fact, the WaMu deal may end up costing JPMorgan billions down the line.
For the second consecutive quarter, JPM did not earn enough to cover its dividend payment, but the company does not appear to be concerned and remains committed to paying it. The company was able to strengthen their capital position, and their Tier 1 capital ratio now stands at 10.8 percent. Tier 1 capital is a metric of a bank’s ability to sustain future losses. Regulators consider a bank to be well-capitalized with a Tier 1 ratio of at least 6 percent.
Looking into 2009, Dimon said, “If the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related business, continued higher loan losses and increases to our credit reserves.”
Bank of America (BAC) -18.43%
Bank of America was slaughtered on news that they are close to receiving billions more from the government to help it absorb Merrill Lynch. Reports indicated the arrangement might protect BAC from losses on Merrill’s bad assets. According to The Wall Street Journal, BAC told the government in mid-December that it was unlikely to complete its purchase because of Merrill’s larger-than-expected losses in the fourth quarter.
It looks like Bank of America may have bit off more than it can chew. In Bank of America’s defense, they had very little time to look over Merrill’s books before their shotgun wedding, and other banks received government aid for rescuing failing banks – JPMorgan had assistance from the government in its purchase of Bear Sterns as did Citigroup in their attempt to buy Wachovia. So why shouldn’t Bank of America get some help as well? It is unlikely that the government would allow such a big bank to fail, but the future for these banks is anyone’s guess when the government is controlling the financial markets.
Full-disclosure of the arrangement will be given with company’s earnings report next Tuesday. Regardless of the government’s potential involvement, Bank of America is expected to cut their dividend to at least two-thirds of the current payout.
Intel (INTC) +1.61%
Intel reported a fourth quarter profit decline of 90 percent after the markets closed. The recession curbed demand and forced the company to write down the value of its investments. Intel’s earnings call should provide some good insight into the technology sector and I will address the comments tomorrow.
Quick Hits
- FDIC’s Bair Says She’d Be ‘Very Surprised by U.S. Bank Nationalization
- I highly recommend this financial bailout game (make sure sound is on)
Peter Lazaroff, Junior Analyst
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