NEW YORK (MarketWatch) -- J.P. Morgan Chase said Thursday that its fourth-quarter profit fell more than 75% amid continuing write-downs and a deteriorating consumer environment.
A $1.1 billion benefit from merger-related items helped the firm post a $702 million, or 7 cents a share, fourth-quarter profit, compared to a profit of $3 billion, or 86 cents a share, in the year-ago period.
"JPMorgan's fourth quarter performance reflects the inevitable reverberations of the subprime mess. This sets a negative tone for other banks that were more heavily exposed and harder hit," Chermaine Lee, an analyst with Celent, said in Thursday.
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total net revenue dipped to $17.23 billion in the quarter, from $17.38 billion last year. Analysts at ThomsonReuters had expected the company to break even on revenue of $18.83 billion.
Analysts at FactSet had expected the company to report a 7-cents-a-share profit.
"Our fourth-quarter financial results were very disappointing, driven by a loss in investment banking largely attributable to continued markdowns on leveraged loans and mortgage trading positions, as well as weak trading results. We also faced higher credit costs associated with continued deterioration across our loan portfolios, including a $4.1 billion addition to loan loss reserves," Chief Executive Jamie Dimon said in a press release Thursday morning.
J.P. Morgan shares fell about 2.5% in afternoon trade.
Morgan had originally planned to report earnings next week, but moved that date up, making it the first of the major banks and S&P 500 financial stocks to post fourth-quarter earnings.
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will report its fourth-quarter earnings Friday morning.
The firm added $4.1 billion in loan loss reserves in the fourth quarter to cover rising defaults across its loan portfolio. During the year, the firm increased its total allowance for loan losses to $23.2 billion.
Chief Executive Jamie Dimon, in a press release, said Thursday that, "If the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related businesses, continued higher loan losses and increases to our credit reserves."
Morgan's investment banking operations lost $2.4 billion in the fourth quarter.
"The weaker results reflected a decrease in net revenue and a higher provision for credit losses, partially offset by lower noninterest expense," the firm said.
Net revenue was negative $302 million, down from $3.5 billion last year, as investment banking fees and advisory fees fell 17% and 10% respectively. Credit loss provisions at Morgan' investment bank rose to $765 million in the quarter, compared to $200 million last year.
Profit fell 15% in the fourth quarter at the retail financial services business but gains from hedging its mortgage servicing business and a benefit from its Washington Mutual acquisition kept the business profitable.
The unit's net income fell to $624 million from the prior year due to a $3.6 billion credit provision, "as housing price declines continued to result in significant increases in estimated losses," the company said.
Home equity losses grew sharply in the quarter, with chargeoffs of $770 million, versus $248 million a year ago.
Retail banking was a bright spot, according to J.P. Morgan, as net income and revenue jumped 85% and 78% respectively due to the Washington Mutual acquisition, which boosted deposits and deposit-related fees.
The credit card business was gloomier, as results swung to a deficit in the fourth quarter as higher loss provisions bit.
The unit lost $371 million in the fourth quarter, an almost $1 billion swing from last year's $609 million profit. The bank's provision for credit losses in the quarter was $3.97 billion, compared to $1.79 billion a year ago.
"It looks like the ghosts of the credit crisis - mortgages and leveraged loans - are still haunting financial institutions, and now new ones are popping up in the form of retail and consumer credit losses, including credit card, housing and automobile loan defaults," Celent's Lee said.
Greg Morcroft is MarketWatch's financial editor in New York.