JPMorgan’s Fourth Quarter Profit Falls As Legal Costs Rise

By Mani
Updated on

JPMorgan, the biggest U.S. bank by assets, unveiled its fourth-quarter results Wednesday, reporting a 6.6% drop in quarterly profit hit by higher-than expected legal expenses. Kicking off fourth-quarter reporting season for financial services sector, JPMorgan also reported lower revenue from its mortgage business, with the national housing market stuck in a slow period.

JPMorgan’s net income drops

JPMorgan’s net income dropped to $4.93 billion or $1.19 per share, in the fourth quarter from $5.28 billion or $1.30 per share a year earlier. Moreover, its revenue on a reported basis dropped 2.8% to $22.51 billion. Consensus estimates from Thomson Reuters indicated analysts had expected JPMorgan to report quarterly earnings per share of $1.31 on $23.64 billion in revenue.

Mirroring the announcement, the bank’s shares traded lower prior to opening bell.

As reported by ValueWalk, JPMorgan had a strong year in 2014 with shares increasing 7%. However, JPMorgan’s shares have already dropped 5% so far in 2015, following Goldman Sachs Group Inc’s issuing of a critical note suggesting a JPMorgan breakup on Jan. 5.

Trading revenue falters

JPMorgan’s reported markets revenue for the quarter, comprised of revenue from its large fixed income arm as well as from its equities unit, dropped 13% from a year earlier to $3.64 billion.

JPMorgan’s revenue from fixed-income trading, – one of its traditional strengths – dropped 23% to $2.5 billion. If the sale of the bank’s physical commodities business and accounting changes are factored in, revenue dropped 14%.

Marianne Lake, chief financial officer of JPMorgan, warned investors last month that the bank’s trading revenue would be down in the high-teens as the bank saw the impact of an exit from its physical commodities business and slow credit trading conditions, among other things.

JPMorgan, one of the largest mortgage lenders in the nation, did show a glimmer of strength in its mortgage business. Mortgage originations edged down 1% from the prior year to $23 billion but rose 8% from the prior quarter. The bank’s profit from mortgage banking was $338 million, down $225 million from the prior year.

The bank reported $990 million in legal expenses, or $1.1 billion on a pretax basis, which was higher than many analysts had forecast. That compares with a pretax legal expense of $800 million a year earlier and is flat compared with third-quarter levels. The bank is also being criminally investigated by the Justice Dept. for alleged foreign exchange rate rigging.

As reported by ValueWalk, JPMorgan agreed to settle a portion of the antitrust lawsuit filed against it on allegations that it manipulated the foreign exchange market.

The world’s largest investment bank is also under scrutiny by regulators pushing to boost the industry’s capacity to absorb losses without taxpayer bailouts. The Federal Reserve laid out a plan last month that may require JPMorgan to add more than $20 billion to its capital by 2019. However, the bank said it can meet these requirements while delivering strong returns to shareholders.

The bank also agreed to $23 billion in accords to end U.S. probes of mortgage bond sales, energy trading and the oversight of services provided to convicted Ponzi scheme operator Bernie Madoff.

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