JPMorgan Chase & Co. pleased investors Friday with news that it will raise its dividend soon, pending approval from the Federal Reserve. The bank also reported that its income jumped 47 percent in the final three months of 2010 as fewer customers defaulted on their loans.
The Fed has asked all of the top U.S. banks to send detailed reports on their finances as part of the central bank's annual assessment of their health. The Fed is expected to complete its study of those plans by March, at which time it could give permission to some banks to raise their dividends.
Most U.S. banks slashed their dividends during the financial crisis in order to conserve cash. After almost two years of solid profits and building up capital, banks like JPMorgan are ready to resume paying the larger dividends that investors are accustomed to. JPMorgan's CEO Jamie Dimon has suggested that the bank could raise its annual dividend from 20 cents per share to as much as $1 if the Fed allows.
The New York bank earned $4.83 billion, or $1.12 per share, as the company set aside less money to cover loan losses. That compares with $3.28 billion, or 74 cents a share, during the same quarter last year. Analysts surveyed by FactSet forecast the bank would earn $1 per share.
Investors liked what they heard. JPMorgan's shares gained 1 percent to $44.91. Other bank stocks also rose on hopes that dividend increases could be on the way. Wells Fargo & Co. rose 3 percent to $32.75 and Citigroup Inc. rose 2 percent to $5.13.
Income from JPMorgan's investment banking unit fell 21 percent from last year, but was up 17 percent from the third quarter on higher fees from underwriting debt. However, the widely watched salary and bonuses in that division increased over three times to $1.8 billion in the fourth quarter, compared to $549 million in the same quarter last year.
The bank increased the amount set aside for litigation by $1.5 billion. In the fourth quarter, several private investors sent letters or sued banks and tried to get them to buy back bad home loans, saying they were improperly written. Dimon said he believed the hurdles for investors to force banks to buy back such loans are high. He said the bank would fight the claims in court.
JPMorgan aggressively rolled out new credit cards in 2010, leading to a 9 percent increase in new accounts compared to the previous year. Customers who were late paying credit card bills by 30 days or more dropped to 3.6 percent, from 5.52 percent in the previous year.
The bank set aside $3 billion for future losses from all its divisions, down by $5.9 billion, or 66 percent, from the prior year. However, a closer look at its mortgage business shows that Americans are still hurting and finding it difficult to meet home loan payments.
The bank added $2.1 billion to the amount set aside for losses in home loans written by Washington Mutual, the failed bank it bought in 2008. Most of it was related to souring home equity loans.
For the full year, JPMorgan had net income of $17.37 billion, or $3.96 a share, up 48 percent from $11.73 billion, or $2.26 a share.