This summary is based on the fourth quarter fiscal 2007 earnings call conducted by JPMorgan Chase & Co. (JPM) on January 16, 2008.
Management:
Chief Financial Officer: Michael J. Cavanagh
Chairman of the Board, President, Chief Executive Officer: James Dimon
Key Investors Issues
- EPS were 86 cents a share compared to $1.09 a share last year.
- Net income fell 34% to $3 billion compared to $4.5 billion in the same period last year.
- Revenue rose 7% to $17.4 billion from $16.2 billion in the year-earlier period.
Fourth Quarter Highlights
Income from continuing operations was $3 billion, or 86 cents per share, down 21% compared with $3.9 billion, or $1.09 per share, in the fourth quarter of 2006.
- Net income was $3.billion, down from $4.5 billion in the prior year, which included a $622 million gain on the sale of selected corporate trust businesses in the fourth quarter of 2006 that is not included in continuing operations.
- Earnings per share of 86 cents per share declined from $1.26 per share in the fourth quarter of 2006.
- Lower quarterly results were affected by the Investment Bank’s markdowns in subprime-related positions and weaker trading. In addition, consumer home equity and subprime loan portfolios performed worse than expected.
Investment Bank
- Net income was $124 million, a decrease of $885 million, or 88%, compared with the prior year, reflecting lower net revenue and a higher provision for credit losses, partially offset by lower noninterest expense.
- Net revenue was $3.2 billion, a decrease of $1.7 billion, or 35%, from the prior year.
- Investment banking fees were $1.7 billion, up 5% from the prior year, reflecting record advisory and equity underwriting fees, largely offset by lower debt underwriting fees.
- Advisory fees were $646 million, up 34%, and equity underwriting fees were $544 million, up 66%.
- Debt underwriting fees of $467 million declined 39%, reflecting lower loan syndication and bond underwriting fees, which were negatively affected by market conditions.
Fixed Income Markets revenue was $615 million, down $1.4 billion, or 70%, from the prior year. The decrease was due to markdowns of $1.3 billion (net of hedges) on subprime positions, including subprime collateralized debt obligations (CDOs).
Fixed Income Markets revenue also decreased due to markdowns in securitized products on non-subprime mortgages and losses in credit trading. These lower results were offset partially by strong revenue in rates and currencies and improved results in commodities compared with a weak prior-year quarter.
Equity Markets revenue was $578 million, down 40% from the prior year, as weaker trading results were offset partially by strong client revenue across businesses. Fixed Income Markets and Equity Markets included a combined benefit of $277 million from the widening of the firm’s credit spread on certain structured liabilities, with an impact of $154 million and $123 million, respectively.
Credit Portfolio revenue was $322 million, up 23% from the prior year, primarily due to higher trading revenue from hedging activities, partially offset by lower gains from loan workouts.
- The provision for credit losses was $200 million, compared with $63 million in the prior year. The increase in the provision resulted from a higher allowance for credit losses, primarily related to loan portfolio growth.
Net recoveries were $9 million, compared with net charge-offs of $10 million in the prior year.
- The allowance for loan losses to average loans retained was 1.93%, an increase from 1.73% in the prior year.
- Average loans retained were $68.9 billion, an increase of $7 billion, or 11%, from the prior quarter.
- Average fair value and held-for-sale loans were $25 billion, up $7.7 billion, or 44%, from the prior quarter due to leveraged lending activity.
- Noninterest expense was $3 billion, a decrease of $194 million, or 6%, from the prior year. The decrease was due primarily to lower performance-based compensation expense offset partially by higher transaction-related costs, reflecting increased volumes.
- Return on equity was 2% and 15% on $21 billion of allocated capital for the fourth quarter and full year 2007, respectively.
Retail Financial Services
