JPMorgan battens down the hatches

Even JPMorgan Chase (JPM) is disappointing investors this earnings season. The big bank said fourth-quarter profits fell to $2.97 billion, or 86 cents a share, from the year-ago $4.53 billion, or $1.26 a share. The 34 percent drop in net income left the bank shy of the 93-cent Wall Street analyst consensus estimate. Like Citi (C) before it, JPMorgan was hit by a sharp rise in money set aside to cover loan losses, particularly in its card business, where the provision for credit losses rose 40 percent from a year ago, and in its retail financial services unit, where the provision quadrupled. JPMorgan was also hit by a 35 percent drop in revenue at its investment banking unit, which was socked by a big writedown of subprime-related holdings and a sharp slowdown in the debt markets. Surprisingly, one area of strength was the company’s mortgage business, where revenue rose nearly tenfold from a year ago to $332 million.

But CEO Jamie Dimon, who has been widely lauded in recent months for steering clear of the collateralized debt obligation mess that has hobbled Citi and Merrill Lynch (MER), among others, spoke in Wednesday’s press release of the need to buckle down with the economy slowing. “We remain extremely cautious as we enter 2008,” he said. “If the economy weakens substantially from here – for which, as a company, we need to be prepared – it will negatively affect business volumes and drive credit costs higher. However, we feel well-positioned given the investments and actions we have taken over the past few years to improve our businesses’ operating margins, create a stronger systems infrastructure and build a fortress balance sheet.” With all the tumult in the banking sector, that fortress is likely to remain attractive to investors regardless of Wednesday’s earnings shortfall.