J.P. Morgan Takes a Retail Hit

Profit Surges to $3.28 Billion, but Mortgage Issues Remain; Pay Rises 19%

By ROBIN SIDEL

A huge rebound in trading and investment banking propelled J.P. Morgan Chase & Co. to quarterly profit of $3.28 billion, but unrelenting losses on consumer loans cast gloom across U.S. banks heading into next week's flurry of earnings reports.

The largest U.S. bank in stock-market value also said it is nipping bonuses for investment bankers by an unspecified amount to help offset the cost of the new U.K. bonus tax. The move spreads financial pain from the one-time tax of 50% on certain bonuses paid in the U.K. throughout J.P. Morgan's investment bank, putting pressure on rival firms to do the same.

Fourth-quarter profit at J.P. Morgan soared to $3.28 billion, or 74 cents a share, from the year-earlier $702 million, or six cents a share. Revenue climbed 32% to $25.24 billion in the latest quarter.

J.P. Morgan's results reinforced the divide between resurgent Wall Street and the rest of the U.S. The stock market's surge, unfrozen credit markets and rekindled deal making are propping up the bottom line even as it is threatened by the impact of relentless foreclosures, unemployment and other forms of the turmoil affecting many Americans.

Retail Woes

Retail-banking operations at the New York company swung to a net loss of $400 million in the fourth quarter from a profit of $624 million in the fourth quarter of 2008. Defaults still are rising for home-equity loans and mortgages held by subprime borrowers and even those with good credit histories, the bank said Friday.

J.P. Morgan also took a hit from losses related to its 2008 purchase of the banking operations of Washington Mutual Inc. The Seattle thrift was a huge mortgage lender before being seized by regulators and sold to J.P. Morgan.

In contrast, the investment bank at J.P. Morgan cranked out earnings of $1.9 billion in the latest quarter, up from a year-earlier net loss of $2.4 billion loss. The business was fueled by higher investment-banking fees and bond-trading revenue.

Because of the sharply mixed outlook, J.P. Morgan likely won't increase its dividend until mid-2010 at the earliest, said James Dimon, the company's chairman and chief executive. "We really want to see a real recovery," he said. The sluggish economy will force J.P. Morgan to keep socking away piles of money to absorb expected losses on credit cards and mortgages.

The results dragged down financial stocks overall, especially U.S. banks with large exposure to consumer loans. Bank of America Corp. fell 3.3%, or 56 cents, to $16.26. Citigroup was down 2.6%, or nine cents, to $3.42. Regional bank KeyCorp fell 3.9%, or 27 cents to $6.58.

Among firms that generate the bulk of their business from Wall Street, Goldman Sachs Group Inc. slipped 2% on Friday, or $3.32, to $165.21. Morgan Stanley was down 82 cents, or 2.6%, to $30.38.

All five of those companies report earnings next week.

Pay Tab for 2009

J.P. Morgan said its 2009 compensation and benefits reached $26.9 billion, up 19% from $22.7 billion in both 2007 and 2008.

In the investment bank, J.P. Morgan set aside $9.3 billion in 2009 for salaries, bonuses and incentive compensation, up 21% from 2008 and 16% from 2007. Like other firms, J.P. Morgan is paying more compensation in the form of stock, though some top earners still get more cash because the firm ditched its $1 million cash limit. Citigroup is imposing a $100,000 cash cap for most employees.