The largest U.S. bank had $1.1 billion of legal expenses in the
fourth quarter, about $850 million of which was linked to a recent
settlement for failing to report its suspicions of fraud at its
client Bernard Madoff's fund.
The bank agreed to some $20 billion of legal settlements in 2013 — almost equal to a typical year's profit — which covered everything
from mortgages it packaged into bonds before the financial crisis,
to bad derivatives trades it made in 2012.
Dimon said some investigations into JPMorgan are just beginning,
implying that legal issues are likely to dog the bank for some time,
even if on a smaller scale.
Legal headaches aside, the bank faces headwinds in businesses
ranging from debt underwriting to advising companies on mergers.
Rising bond yields are cutting into demand for issuing debt, and new
rules designed to make the financial system safer are also cutting
into trading volumes.
Investment banking fee revenue dropped 3 percent to $1.67 billion,
and stock and bond trading revenue combined was unchanged before
Shares of JPMorgan were up 0.3 percent at $57.86 in afternoon
trading on the New York Stock Exchange.
The results from JPMorgan, the first of the major investment banks
to report for the quarter, show the difficulties that rivals like
Goldman Sachs Group Inc and Morgan Stanley are facing.
"It's going to be a slugfest in 2014 to grow earnings," said Chris
Mutascio, a bank analyst at KBW.
Still, JPMorgan is hopeful about the future.
In 2013, the bank added staff in investment banking and it won
market share in most major businesses, including advising companies
on mergers and underwriting stock offerings.
But overall revenue in most Wall Street businesses is falling or
barely growing. Merger volume, for example, fell 6 percent last year
to the lowest level since 2009, Thomson Reuters data shows. Bond
underwriting activity fell 2 percent to its lowest since 2011.
JPMorgan posted net income of $5.28 billion, or $1.30 per share, for
the quarter, compared with $5.69 billion, or $1.39 a share, a year
Excluding special items, the company earned $1.40 per share, beating
analysts' average estimate of $1.35, according to Thomson Reuters
The special items included a benefit of 21 cents per share from the
sale of Visa shares and 8 cents from the sale of its building at One
Chase Manhattan Plaza. It posted an expense of 27 cents from legal
bills, including the Madoff settlements.
Three months ago, JPMorgan posted its first quarterly loss under
Dimon after recording after-tax expenses of $7.2 billion to settle
government and private investigations.
Investors have been looking for reassurance from the company that
the worst of its legal expenses is over.
[to top of second column]
There were bright spots in the quarter; for example, equity
underwriting revenue soared 65 percent to $436 million.
But investment banking fees were pulled down by lower debt
underwriting, where revenue declined 19 percent, and merger advisory
fees, which fell 7 percent. Altogether, investment banking fees
declined 3 percent to $1.67 billion.
The bank's market share in equity underwriting rose to 8.3 percent
in 2013, moving it to second place in the industry from fourth.
Goldman Sachs led with 11.4 percent, according to Thomson Reuters
Rising mortgage rates hurt the bank's mortgage lending results, as
fewer borrowers refinanced.
JPMorgan acknowledged that it was too slow to cut expenses in this
business, and it lost $274 million, before taxes, from mortgage
lending, compared with a year-earlier profit of $789 million.
Wells Fargo & Co, the fourth-largest U.S. bank, on Tuesday posted
its lowest quarterly mortgage lending volume since the fourth
quarter of 2008. But the bank posted an overall profit jump because
it cut costs and dipped into money it had set aside to cover loan
At JPMorgan, expenses excluding interest costs fell 3 percent to
$15.55 billion during the quarter, while provisions for bad loans
fell 84 percent to $104 million.
JPMorgan said its assets shrank to $2.42 trillion at the end of
December from $2.46 trillion in the preceding quarter. It had $2.36
trillion a year earlier.
Loans, excluding money set aside for bad loans, grew about 1.6
percent from the third quarter and 1.4 percent from the fourth
quarter of 2012.
(Reporting by David Henry in New York
and Tanya Agrawal in Bangalore; additional reporting by Lauren Tara LaCapra and Luke Swiderski in New York;
editing by Dan Wilchins,
Lisa Von Ahn and Bernadette Baum)
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