Today, JP Morgan Chase & Co (JPM) reported its fourth-quarter earnings, and I have to say—I told you so. JP Morgan is the first bank to report for the fourth quarter, and is closely watched for what to expect from the other major financials.
The bank reported a 23% drop in fourth-quarter profits, largely due to yet another weak quarter from its investment banking operations. The mortgage business also swung to the red as losses and delinquencies remain high.
On a positive note, however, the bank’s business-lending operations continued to signal a strengthening economic recovery. The bank’s total loan book rose 4% as lending to midsize businesses climbed 4% and loans to big corporations increased 9%.
These weren’t terrible earnings, as banks are benefiting from overall improving economic headwinds. However, there are still many industry-specific problems and as a former banking analyst, I feel very strongly about staying away from banking stocks right now.
Eventually, the banking industry will recover, but in the meantime there are simply too many other great stocks and sectors out there to even bother with banks.
The financial industry was the biggest loser in 2011 and I continue to rate most of the stocks in this financial sector as D or F grades in my Portfolio Grader tool. However, I strongly encourage you to steer clear of all companies in this industry even if they are rated better than that.