Even JPMorgan Chase is still putting new money away to cover bad loans

01/15/2010 11:40 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Can’t anybody run a bank anymore?

I don’t mean an investment bank that makes its money from trading, managing stock and bond offerings, and inventing new financial instruments. That’s a good business these days for everybody from Bank of America (BAC) to JPMorgan Chase (JPM). (At Goldman Sachs (GS) it’s a great business.)

I mean a bank that takes deposits and makes loans through such bread and butter products as mortgages and credit cards.

JPMorgan Chase is one of the best in the business at that business. But even that bank, it admitted in its fourth quarter 2009 earnings report issued this morning (January 15) , just keeps generating losses in its traditional banking businesses.

Investors who were hoping to see signs that the end of trouble in retail and commercial banking was near have sent shares down 2.3% this morning (as of 11 a.m. in New York).

Here’s the problem in JPMorgan Chase’s earnings.

The top line number looks great. Fourth quarter earnings of 74 cents a share or $3.3 billion, were 13 cents a share better than Wall Street had expected and way above the 6 cents a share and $702 million the bank reported in the fourth quarter of 2008. Revenue climbed 32% from the fourth quarter of 2008 to $25.2 billion although they still came in below Wall Street’s projected $26.8 billion.

But more than half of that profit came from the company’s investment banking business, which posted net income of $1.9 billion for the quarter. Fixed income trading contributed another $2.7 billion to net income.

And the bank’s traditional banking businesses?

Well, income in the commercial banking unit—the one that makes loans to businesses—fell to $244 million in the quarter (from $480 million in the fourth quarter of 2008) as the bank boosted reserves for losses by another $304 million on continued weakness in commercial real estate. (Watch out regional and local banks! Smaller banks have a much higher percentage of their portfolios locked up in commercial real estate loans than a money center bank like JPMorgan Chase does.)

And the consumer bank turned in another terrible quarter with a $399 million loss. The retail banking part of the consumer banking unit posted a $1 billion profit but that was more than offset by a $1.4 billion loss from consumer loans. The credit card division alone lost $306 million in the quarter.

The net-charge-off rate on credit cards for bad debt fell to 9.3% in the quarter from 10.3% in the third quarter of 2009, it’s true, but that still left the rate well above the 5.6% charge-off level of the fourth quarter of 2008. And JPMorgan Chase’s CFO really disappointed investors and analysts when on the company’s conference call he noted that he couldn’t say that the bank has reached the peak of the reserves it must put aside for bad debt.

This much bad news from the strongest of the big banks (I don’t call Goldman Sachs a bank no matter what the paper work at the Federal Reserve says) doesn’t bode well for next week’s earnings reports from Citigroup (C) on January 19, Bank of America on January 20, and Wells Fargo (WFC) on January 20.

And with the stock market as a whole dependent on the financial sector for leadership in recent days, next week could be a volatile one of stocks in general.

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