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By Jeremy Glaser | 01-14-2011 12:17 PM

J.P. Morgan's Dividend Looks Set to Rise

Morningstar's Jaime Peters thinks the firm's solid fourth-quarter results potentially set the stage for two dividend increases in 2011.

Jeremy Glaser: For Morningstar, I am Jeremy Glaser.

J.P. Morgan's quarterly results show that they're near the top of the United States' large banks. Here to give her take is senior banking analyst, Jaime Peters.

Jaime, thanks for joining me today.

Jaime Peters: Good afternoon.

Glaser: Jaime, can you share with us your take on the quarter?

Peters: J.P. Morgan actually has a very strong core fundamental earnings, and they are starting to shine through. The company has a strong investment bank, a strong retail franchise, and we're finally starting to see those earnings come to the bottom line because we're seeing credit costs finally come down.

Glaser: Could you talk a little bit about the kind of provisions that they had to take against their loan book? I know that they still have lot of those Washington Mutual loans from that acquisition. How is that going?

Peters: It's not going so well, actually. They actually took a $2 billion extraordinary provision for the Washington Mutual loans because when they originally did the credit impairment associated with it, they were too low. They had expected improvement by this time, and losses are still remaining high.

On the other hand, on their own portfolio, Chase book, they've seen improvement in credit cards, they've seen improvement in auto loans, and as a result they were able to release reserves in those types of categories, which pretty much offset most of the reserves from the Washington Mutual loans. As a result, they actually did a fairly decent job. You actually saw credit reserves come down slightly. They're still at elevated levels for historical situations, but they are doing much better.

Glaser: So you don't think that the WaMu book is going to drag down earnings over the long-term for J.P. Morgan?

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