NEW YORK — Two major Wall Street banks reported a surge in profits during the last three months of 2012, but analysts cast doubt on whether that will continue this year.
JPMorgan Chase & Co., the country's largest bank by assets, posted $5.7 billion in earnings in the fourth quarter, a 53% increase from the same period a year ago. Investment banking giant Goldman Sachs Group Inc. reported earnings of $2.8 billion, nearly tripling its haul from the same period a year ago.
The results sailed past analyst projections, providing a window into Wall Street's profitability as the economy struggles to recover and as the industry grapples with new banking regulations.
"We're definitely coming out of the abyss," said Ken Leon, a banking analyst at S&P Capital IQ. But, he cautioned: "We are not anywhere near euphoria."
Investors sent both firms' shares higher Wednesday, during a week in which Citigroup, Bank of America and Morgan Stanley will also report earnings.
JPMorgan's profit was buoyed by growth tied to an improving housing market, investment banking and its own investments. The bank reported big jumps in mortgages — originations of $52 million, up 33%. Commercial loans grew 14% in the fourth quarter, to a record $128 billion.
The bank's profit also got a boost from reserves released because of borrowers' improving credit and the decreased likelihood they would default on their loans.
JPMorgan's earnings were weighed down by an approximately $700-million expense for its chunk of the so-called Independent Foreclosure Review settlement. The bank was one of 10 major financial companies that reached the $8.5-billion settlement — announced last week — with federal regulators to end their probe of alleged foreclosure abuses.
While the bank saw a 12% jump in profit overall last year thanks in large part to a decline in provisions for credit losses, revenue was essentially flat compared to 2011.
Despite JPMorgan's surge in profit, the bank's board punished Chairman and Chief Executive Jamie Dimon for management failures that led to the bank suffering about $6 billion in losses from risky derivatives bets made by a trader nicknamed the "London Whale."
JPMorgan's board of directors slashed Dimon's pay 50%, saying he "bears ultimate responsibility" for missteps by the bank's chief investment office. The losses were disclosed last May.
"This was one huge, embarrassing mistake," he said.
One of the highest-paid and most-respected figures on Wall Street, Dimon will take in $11.5 million in 2012 compensation, down from a $23-million pay package in 2011.
His 2012 salary remained flat at last year's $1.5 million, but his overall compensation includes $10 million in restricted stock units, down sharply from the previous year. Dimon said he respected the board's decision.
Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said the rare docking of a major bank chief's pay made an important symbolic statement that executives should be paid based on their performance.
"It's not going to change his lifestyle," Elson said of Dimon's pay cut, "but it certainly makes the point."
Looking ahead, Dimon expressed optimism about the economy.
"Consumers, businesses, housing and small businesses — they're all in pretty good shape," he said in a call with analysts.
But sustaining growth in mortgage origination could prove challenging this year, and low interest rates make traditional banking less profitable, analysts said.
"Traditional banking is not making nearly as much money," said Lance Roberts, who heads StreetTalk Advisors, an investment advisory firm. "There's a big disconnect between the profitability of the banks and Main Street America."
While Goldman's profit in investment banking and trading surged, the bank's results were lifted by its own private-equity investments and an 11% reduction in compensation, Goldman's biggest expense. Goldman has become a profit powerhouse and its employees are among the most highly compensated on Wall Street.
JPMorgan's stock added 47 cents, or 1%, to $46.82 in trading Wednesday. Goldman gained $5.50, or 4%, to $141.09 a share.
andrew.tangel@latimes.com
JPMorgan, Goldman profits rise sharply
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