Defaults surged in a wide variety of loans, ranging from home loans to credit cards to commercial real estate loans. JPMorgan's investment bank was forced to mark down its portfolio by $2.9 billion. And had it not been for JPMorgan's buy of Washington Mutual Inc. late last year, the bank would have reported a net loss for the fourth quarter.
Even Chief Executive Jamie Dimon called the results "very disappointing."
Every financial institution is "struggling with this extreme environment," Dimon said in a call with journalists on Thursday. "We don't know exactly the outcome."
That grim industry outlook arrived a day before Citigroup Inc. is expected to report its deepest per-share loss since the crisis began, and as news emerged that Bank of America Corp. has asked the government for more funding.
New York-based JPMorgan Chase & Co. on Thursday reported a profit of $702 million, or 7 cents per share, down 76 percent from $2.97 billion, or 86 cents per share, a year ago.
Analysts, who had been trimming their estimates in recent weeks, expected break-even results. Analyst estimates tend to exclude one-time items. The purchase of WaMu - which added massively to JPMorgan Chase's consumer banking business - helped the company book a $1.1 billion gain, after taxes, from "merger-related items."
But corroding loans inherited from WaMu, the largest bank ever to fail in U.S. history, are expected to mar JPMorgan's results this year. Moody's cited WaMu and its credit card portfolio as one reason it slashed Chase Bank's credit rating on Thursday.
The bank added $4.1 billion to loan loss reserves to account for future loan losses.
Shares rose 31 cents to $26.22 in afternoon trading Thursday, after rising as high as $27.05 earlier.
JPMorgan's results showed that "no one is going to come out of this immune," said Chermaine Lee, an analyst with the financial research and consulting firm Celent. JPMorgan is "probably one of the stronger survivors of the crisis ... but this proves that no one is unscathed."
Deutsche Bank analyst Mike Mayo wrote in a note that "all was not bad" for JPMorgan during the fourth quarter, but he believes most analysts' estimates for the company's future performance are currently too high.
Viewed as one of the stronger U.S. banks for several quarters now, JPMorgan Chase & Co. is in the midst of absorbing the two weaker banks it bought last year, WaMu and Bear Stearns Cos.
JPMorgan is the first of the big U.S. banks to report results for the fourth quarter. The period was a particularly rough one for the financial services industry, leading the U.S. government to loan hundreds of billions of dollars to U.S. banks to get them to lend more. JPMorgan Chase got $25 billion, as did Bank of America, Wells Fargo & Co., and Citigroup. In December, Citigroup got an extra $20 billion dose of funding.
JPMorgan said Thursday that it extended more than $100 billion in new credit to individuals, businesses, municipalities and nonprofit organizations.
"I think we're speaking for lots of banks here - people are out making loans," Dimon said in a conference call with investors. He said "loan demand is actually dropping dramatically," and that JPMorgan is "trying to follow the intent and spirit" of the government's Troubled Assets Relief Program.
JPMorgan will be releasing more details in a couple of days on its efforts to modify mortgages, Dimon said. He said, though, he believes legislation to modify mortgages by lowering principals through bankruptcy could have a "chilling effect" on U.S. consumer lending.
During the fourth quarter, JPMorgan's investment bank posted a loss of $2.4 billion, after a profit of $124 million a year ago. Card services also reported a loss of $371 million, after a profit of $609 million a year ago, as more cardholders failed to make their payments.
Losses in cards are expected to rise as unemployment increases. Dimon said that in his opinion, unemployment will rise to between 7.5 percent and 8 percent, at minimum.
"If the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related businesses, continued higher loan losses and increases to our credit reserves," he said in a statement.
For all of 2008, JPMorgan Chase posted a profit of $5.6 billion, or $1.37 a share. That was down from a record annual profit in 2007 of $15.4 billion, or $4.38 a share.
Citigroup reports its own fourth-quarter and annual results on Friday. The bank just sold control of its Smith Barney brokerage to Morgan Stanley to raise capital. Investors are hoping for more details from Citigroup CEO Vikram Pandit about what other businesses they might shed.