BackJPMorgan profit drops 7.3% after Madoff legal settlements
Q4 net income declined to $5.28 billion from $5.69 billion a year earlier
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New York: JPMorgan Chase & Co.’s quarterly profit fell 7.3% on $2.6 billion of settlements tied to Bernard Madoff’s ponzi scheme as rising legal costs ended the firm’s three-year streak of record annual earnings.
Fourth-quarter net income declined to $5.28 billion, or $1.30 a share, from $5.69 billion, or $1.39, a year earlier, according to a statement on Tuesday from New York-based JPMorgan, the biggest US bank. Results excluding the Madoff settlement and other one-time items were $1.40 a share. Twenty-two analysts surveyed by Bloomberg estimated $1.37 on average.
Chief executive officer (CEO) Jamie Dimon, 57, is whittling down the firm’s list of legal woes that include allegations it misled buyers of mortgage bonds, rigged markets and turned a blind eye to suspicious activity by customers. The Madoff agreement, which the bank said last week reduced fourth-quarter profit by about $850 million, capped a year in which JPMorgan spent more than $23 billion on legal settlements.
“All things considered, it wasn’t a bad quarter," said Pri de Silva, senior banking analyst at CreditSights Inc. in New York. “They had something close to a kitchen-sink quarter getting some legal issues done."
Shares of the company rose to $57.80 at 7:22 am in New York from $57.70 at the close on Monday. The stock climbed 33% last year, compared with the 35% gain of the 24-company KBW Bank Index, the benchmark’s best annual performance since 1997.
Revenue Drop
Revenue dropped 1.1% to $24.1 billion while expenses declined 3.1% to $15.6 billion. Full-year profit fell 16% to $17.9 billion.
Earnings at the corporate and investment bank tumbled 57% to $858 million, driven by a $1.5 billion charge from changing the valuation of some over-the-counter derivatives to incorporate funding costs. So-called funding valuation adjustments, or FVA, estimate a present value of those funding costs rather than spreading them over the life of the derivative contract.
Revenue at the unit fell 21% from a year earlier to $6.02 billion.
Net income from consumer and community banking climbed 19% to $2.37 billion as provisions for credit losses fell and expenses declined. Revenue was $11.3 billion, down 8% from a year earlier.
Mortgage fees and related income dropped 46% to $1.09 billion in the quarter, from $2.04 billion a year earlier. Home-loan originations were $23.3 billion, down 54%.
Red Flags
JPMorgan avoided prosecution in the Madoff case by acknowledging that it ignored red flags for about 15 years that Madoff used his account to fund his fraud, Manhattan US attorney Preet Bharara said. Madoff is serving a 150-year federal prison sentence.
“We are pleased to have made progress on our control, regulatory and litigation agendas and to have put some significant issues behind us this quarter," Dimon said in the statement.
Still to be resolved are inquiries into whether the bank’s hiring practices in Asia violated anti-bribery laws, as well as possible manipulation of interest rates and currency benchmarks. The bank is also being probed about mortgage-bond trades after the financial crisis.
“What you want to hear is that they’re resolving these issues, and that by the end of 2014 they get to a place where we’re talking about business operations and not the resolution of litigation or regulatory issues," Marty Mosby, a bank analyst with Guggenheim Securities LLC., said before earnings were released.
Settling Lawsuits
Dimon is motivated to settle the remaining cases, even if doing so means paying a premium over fighting claims in court, he said last month. Battling regulators and private claimants would expose the firm to being “demeaned in the press non-stop," he said.
“So you may have paid a premium to settle, we thought it was a far better thing to do," Dimon said at a 11 December conference. “It’s very hard to go to court in some of these matters if you’re a bank."
JPMorgan eliminated 3,845 jobs during the quarter, bringing the total to 251,196, according to a financial supplement on the company’s website.
JPMorgan, which has said it’s severing ties with foreign banks and individuals to tighten anti-money laundering controls, said last week it’s weighing options including a sale of its prepaid-card business. The bank was the fourth-biggest prepaid-card issuer in 2012, with $9.8 billion of volume, according to the Nilson Report, an industry newsletter. Bloomberg
Michael J. Moore in New York contributed to this story.
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