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):

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:

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):

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:

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

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.