5 Highlights From JPMorgan's 2010 Earnings

Megabank JPMorgan released its fourth quarter, and consequently year-end, earnings Friday morning. Its fourth-quarter profit grew by 47% compared to a year earlier. It also beat Wall Street expectations, as it earned $1.12 per share, instead of the 99 cents per share the consensus expected. It's always a tough task to try to dig through these massive data dumps, and when a bank is as complicated as JPMorgan, it's even harder. So here are several highlights that help to show how the firm is doing.

Net Revenue

Here's a chart showing how the bank's net revenue breaks down by its various components (in $ millions):

jpm net rev 2010 sch.png

First, you can see that revenue was actually down by 4% in 2010. Performance was mixed among its segments, with card services experiencing much weaker revenue while asset management and corporate/private equity grew strongly. Here's how the net revenue broke down by business line last year:

jpm net rev 2010 pie v3.png

Retail and investment banking are obviously the biggest components of JPMorgan's business, making up more than half of its net revenue.

Profit

While it's useful to see from where all of the bank's money is coming in, it's arguably more important to figure out how much of that money it's able to retain for shareholders after expenses. Here's a similar chart showing net income (in $ millions):

JPM net inc 2010 sch.png

So despite revenue declining, profit increased in 2010 by an impressive 48%. The year benefited from much better performances in retail banking as credit losses declined. Card services also had a much better year, as did commercial banking. Here's how net income changed in dollars, by segment:

jpm net inc 2010 bar v2.png

So how does much net income did each business line contribute to total profit? Here's another pie chart that explains:

jpm net inc 2010 pie v2.png

This shows that JPMorgan gets by far the most profit from its investment banking arm. If you wonder why investment bankers make so much money, you now have your answer: because they make so much money.

Banker Compensation

Speaking of all the money investment bankers make, how did their compensation fare last year? For just that segment, compensation was $9.7 billion, which breaks down to $369,651 per banker. That might sound like a lot, but it's actually a 2% decline compared to 2009, when average compensation was $378,600. The compensation pot actually grew in 2010 by $393 million, however. Per banker compensation fell because the firm's investment banking staff grew  at a faster pace, increasing by 1,660 heads.

Consumer Banking

As mentioned earlier, JPMorgan's retail segment had a much better 2010 than 2009. Its $2.5 billion profit cannot be explained by its net revenue, however. It declined slightly. Instead, the improvement can be mostly attributed to lower credit loss provisions for the segment. They fell from $15.9 billion in 2009 to $9.5 billion in 2010. Its profit didn't increase by as large a margin  because other expenses also rose.

Mortgage Repurchase Risk

Earlier this month, we learned that Bank of America settled a dispute with Fannie Mae and Freddie Mac over a large portion of the mortgages the entities demanded the bank repurchase. JPMorgan faces similar risk of losses related to such repurchases, by both the agencies and investors. The company cited a fat $5.7 billion litigation expense related to this struggle for 2010, which was largest in the fourth quarter when it rose to $1.5 billion. At year end, the company cited a $3.3 billion repurchase liability. That number is not much changed from the third quarter, but is nearly double what it was a year earlier.


So it was a pretty good year for JPMorgan. It has the benefit of strong diversification across financial services. Even though its investment banking business was down a little compared to 2009, it more than made up for that through other segments shining, including retail banking and card services. It will be interesting to see how the bank does in 2011, as significant challenges lie ahead. It must contend with a large portion of last summer's Dodd-Frank financial regulation bill taking effect, new Basel III capital requirements looming, and lawsuits surrounding bad mortgages.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

Why Is Google Making Human Skin?

Hidden away on Google’s campus, doctors at a world-class life sciences lab are trying to change the way people think about their health.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Videos

Why Is Google Making Skin?

Hidden away on Google’s campus, doctors are changing the way people think about health.

Video

How to Build a Tornado

A Canadian inventor believes his tornado machine could solve the world's energy crisis.

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In