JPMorgan Chase has reported a net income of $3.7 billion for the fourth quarter of 2011, a drop of $1.1 billion over the fourth quarter of 2010, and a 23 percent drop in profit. Chase reported a full-year 2011 net income of a record $19 billion, compared to 2010's net income of $17.4 billion. However, Chase's mortgage production and servicing reported a net loss of $258 million, compared with net income of $330 million in 2010.
"As the economy continues to recover, we are gratified to see signs of improvement in loan demand and credit quality," said Jamie Dimon, chairman and CEO of JPMorgan Chase & Company. "Commercial banking had its sixth consecutive quarter of loan growth, including a 17 percent increase in middle-market loans over the prior year. Mortgage originations through the firm's retail channel were strong."
Mortgage production pretax income for Chase for 2011 stood at $161 million, a decrease of $392 million, or 71 percent from 2010. Production-related revenue, excluding repurchase losses, was $1.1 billion, a decrease of $269 million, or 20 percent, from the prior year, reflecting narrower margins and lower volumes. Production expenses were at $518 million, an increase of $82 million, or 19 percent, reflecting a shift to higher-cost originations within the retail channel, as well as enhanced underwriting processes. Repurchase losses were $390 million, compared with repurchase losses of $349 million in the prior year. The higher losses were primarily driven by an acceleration of Agency demands.
"We are not making a profit on mortgages," said Dimon in a conference call. "We are getting killed in mortgages, in case you haven't noticed. We provided new credit cards to 8.5 million people and originated more than 765,000 mortgages. In order to help struggling homeowners, the firm has offered more than 1.2 million mortgage modifications since 2009, of which, 452,000 were completed."
Mortgage servicing resulted in a pretax loss of $586 million, compared with pretax income of $14 million in the prior year, largely due to mortgage servicing rights (MSR) risk management loss. Servicing-related revenue was $1.1 billion, a decline of nine percent from 2010, as a result of the decline in third-party loans serviced. MSR asset amortization was $406 million, compared with $555 million in 2010; this reflected reduced amortization as a result of a lower MSR asset value. Servicing expense was $925 million, a decrease of $33 million, or three from 2010. The prior-year servicing expense included $374 million related to foreclosure-related matters. MSR risk management was a loss of $377 million, down $667 million compared with the prior year. The current-quarter MSR risk management loss included an $832 million decrease in the fair value of the MSR asset, partially offset by $460 million of net gains on the associated derivative hedges.
"I am proud of the work our 260,000 employees have done this past year to continue the firm's 200-year tradition of showing leadership and responsibility during challenging times," said Dimon. "JPMorgan Chase has a positive impact on the lives of millions of people and the communities in which they live. All of the Firm's accomplishments and our success in the future rest on a foundation of capital strength and careful stewardship of the Firm through this challenging economy and a new, complex regulatory environment. We are working hard to help our clients thrive, economies grow and communities prosper."