In an era when banks can lose $10 billion in a single quarter, it is actually amazing that any financial institution can earn a profit. When we look forward to fixing the economic disaster left for the next president to fix, we may wonder why we give so much control of the world economy to people who take such enormous risks while earning more money than anyone else on the planet -- even as they leave the rest of us to pay for their mistakes. That situation must change.
It looks, though, like JPMorgan Chase & Co. (NYSE: JPM) will not be the guiltiest of the parties in this respect. Granted, JPMorgan did get $30 billion in protection from the U.S. to bail out Bear Stearns and it took $25 billion from the TARP. But at least it is still making a profit -- albeit a much smaller one than it did in the fourth quarter of 2007. Specifically, JPMorgan made $702 million in the fourth quarter or 7 cents a share -- down 76% from the $3 billion it earned in the same period last year. (However, without a $1.3 billion gain from closing a joint venture and "risk- management results," JPMorgan would have lost 28 cents a share.)
In so doing, JPMorgan took huge hits across its businesses. Its $2.8 billion in losses came from its trading, corporate lending, credit card and mortgage lending. Its investment bank took a hit from the stock market downturn and rising losses as it struggled to wind down a big securities portfolio -- taking $1.1 billion in charges on its mortgage exposures and a $1.8 billion hit to its portfolio of leveraged loans.
With JPMorgan's stock down 37% in the last year, it remains unclear whether it has further to drop or whether now is a good time to buy it. While the stock is up 2.5% in pre-market, the possibility for bad news in 2009 and 2010 may not be fully reflected in its stock. I would wait to buy the stock.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and his latest book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.
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