JPMorgan Chase & Co reported deep losses on mortgage and credit card loans in the fourth quarter, damping hopes that consumer credit is on the mend.

Strong investment banking results helped quarterly profit soar to $3.3 billion, topping Wall Street expectations. But analysts had been hoping for signs that the bank's credit costs were leveling off or even starting to fall, particularly for consumer loans.

Consumer credit may be close to a bottom here, but it's not getting better, and people wanted JPMorgan to say it's getting better, said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management, which owns JPMorgan shares.

Losses at the second largest U.S. bank were in line with typically cautious guidance the bank had given in recent months but its projections for 2010 were hardly any more sunny.

We don't know when the recovery is, Chief Executive Jamie Dimon said on a conference call with investors.

JPMorgan is the first of the major banks to report fourth-quarter numbers and its results may bode ill for competitors.

The New York-based bank's overall quarterly profit amounted to 74 cents a share, beating analysts' average estimate of 61 cents, according to Thomson Reuters I/B/E/S. Year-earlier earnings were $702 million, or 6 cents a share.

Revenue, excluding the impact of assets that have been packaged into bonds and largely sold to investors, totaled $25.2 billion, falling short of analysts' average forecast of $26.8 billion.

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For a graph on JPMorgan's results, see: http://link.reuters.com/gaz73h

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JPMorgan shares fell 1 percent to $43.68. Shares of other major banks also fell, weighing on the broader market.

The logic is, as goes JPMorgan, so goes the rest of the banks, said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

CONSUMER EXPOSURE

The bank's large mortgage and credit card businesses have seen rising credit costs in the last year, offset only by record investment banking revenue.

Losses even on prime mortgages almost tripled to $568 million compared to a year earlier. The bank set aside a total of $4.2 billion to cover mortgage, home-equity and other consumer loan losses in the fourth quarter, up $653 million from the same quarter a year earlier.

To be sure, total credit losses excluding the impact of securitizations actually slipped to $7.8 billion from a high of $8.1 billion in the third quarter.

But much of that decline is due to a reduction in credit card losses related to a May offer allowing card customers to defer payments for a month. That deferral slowed the pace at which customers were delinquent at the end of last year, and pushes some customer defaults into the first quarter of 2010. Total credit losses were up 72 percent from the fourth quarter a year earlier.

JPMorgan is the bellwether. It is the best, most well-capitalized, best-managed bank, said Jamie Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia. You would hope they'd be the first bank to be able to begin the process of paring down loan loss reserves.

JPMorgan's credit losses could indicate further trouble for Citigroup Inc , which reports quarterly results on Tuesday, and Bank of America Corp , which reports on Wednesday. Both banks have large consumer exposure. Bank of America shares fell 3 percent to $16.31, while Citi shares fell 1.4 percent to $3.46.

INVESTMENT BANK COMPENSATION

For JPMorgan, which acquired investment bank Bear Stearns Cos in March 2008, investment banking profits helped mop up consumer and commercial losses, even though fixed income trading revenues fell from record levels in the third quarter.

The unit generated a fourth-quarter profit of $1.9 billion, compared with a loss of $2.4 billion in the same quarter a year earlier but down 1 percent from the third quarter.

The profit was helped by JPMorgan setting aside less money than expected to pay its investment bank employees. For the year, compensation expense was just 33 percent of revenue, much less than the industry standard of 45 to 50 percent, contributing to the better-than-expected bottom line.

The low compensation expense bamboozled even some of the most accurate analysts, as measured by Thomson Reuters StarMine. These analysts earlier this week expected earnings to be as much as 3.6 percent below the consensus.

Even if compensation expense was lower than expected, JPMorgan is set to pay its banking staff handsomely. It set aside a record $9.3 billion to pay investment banking employees, even as executives appeared before the Financial Crisis Inquiry Commission this week to explain anticipated high bonuses and lack of loan growth.

JPMorgan's wholesale and consumer loan books shrank 22 and 11 percent respectively compared to the fourth quarter last year.

Dimon, who was named Banker of the Year by American Banker magazine in December, said he expects the bank to make more loans once the economy recovers. When pressed as to when he expects the recovery, he said, There are some good signs out there, but we don't know.

(Reporting by Elinor Comlay; additional reporting by Leah Schnurr, Clare Baldwin, Jonathan Spicer and Dan Wilchins; editing by John Wallace, Bernard Orr)

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