JPMorgan Chase, the largest US bank by assets, kicked off Wall Street’s earnings season with lower quarterly profits, as the legal costs that have plagued the group for two years continued to take their toll.
It was outshone by Wells Fargo, the San Francisco-based lender, which reported higher full-year profits than its East Coast rival for the first time in four years.
At JPMorgan fourth quarter net income fell 7 per cent to $5.3bn, or $1.30 a share, on revenue that fell 1 per cent to $24.1bn compared with the same period a year earlier.
The results mark the end of a year in which JPMorgan was enmeshed in a seemingly never-ending array of scandals and reached a record $13bn settlement to resolve claims it mis-sold mortgage securities.
Three months ago the bank recorded its first quarterly loss since 2004 after taking a big litigation charge to cover its legal costs. On Tuesday, it took another $1.1bn charge to top up its legal reserves to cover $2.6bn in settlements for its failure to alert US authorities to Bernard Madoff’s Ponzi scheme.
Jamie Dimon, chief executive, said in a statement: “It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward.”
He declined to say that JPMorgan would be able to deal this year with all its outstanding legal and regulatory investigations, which range from its hiring practices in Asia to an inquiry into possible manipulation of foreign exchange markets.
“I think you’ve got to take a rain check on that,” said Mr Dimon. “Some of those are just beginning. The set of facts on all the banks are different.”
Asked whether he had considered resigning in the wake of the deluge of legal issues or faced calls to quit from investors, Mr Dimon said: “No, no and it’s all up to the board.”
Though lower than last year’s results, they exceeded analysts’ expectations. Analysts had expected net income of about $4.5bn and earnings per share of about $1.14. JPMorgan shares were slightly higher by the close at $57.74.
Wells Fargo, the biggest US bank by market value despite its much smaller balance sheet, notched up another record quarter of profit as it cut expenses – including more than 6,000 jobs in its mortgage division – to offset a slump in mortgage refinancing.
The bank reported net income of $5.6bn in the fourth quarter, up 10 per cent from a year ago and beating analyst estimates of $5.3bn.
“While the future is never certain, we start 2014 in a much better position than we started 2013,” said Tim Sloan, chief financial offer of Wells Fargo.
At JPMorgan, among other one-off items was a gain of $1.3bn from the sale of shares in Visa and a $500m gain from the sale of One Chase Manhattan Plaza, the bank’s 60-storey building in lower Manhattan.
Return on equity was 10 per cent, down from 11 per cent in the same quarter a year earlier. The bank said the return on tangible common equity would have been 15 per cent without legal costs and exceptional items.
“If you look at the underlying results they’re quite good and the returns on capital are quite good and they’re still growing,” said Mr Dimon.
Wells Fargo, unlike JPMorgan, was shielded from investment banking headwinds due to its focus on consumer and commercial banking.
At JPMorgan, the corporate and investment bank saw net income slide 57 per cent to $858m in results that were clouded by a variety of accounting charges, such as the profits and losses banks are forced to take from swings in the value of their own debt. Return on equity was 6 per cent or 15 per cent excluding those charges.
A new valuation charge, which JPMorgan described as a “funding valuation adjustment”, hurt the results by $1.5bn. The bank said an industry move to change the way derivatives were valued, incorporating their funding costs, was responsible.
Equity underwriting revenues were up 65 per cent to $436m after a strong quarter for initial public offerings, a feature which is expected to also lift the results at rivals such as Goldman Sachs. Trading revenues were flat at $4.1bn.
The consumer bank arm saw net income rise 19 per cent to $383m as reduced expenses offset a decline in revenue. In a sign that new mortgages are a long way from making up for the plunge in refinancing caused by higher interest rates, JPMorgan said home loan originations fell 54 per cent from the previous year.
Bankers’ pay was reined in. JPMorgan said it was down year on year, though flat at 27 per cent of revenues. Unlike some rivals, that ratio includes a large number of commercial bankers whose pay is not as lucrative as investment bankers and lowers the total average percentage.
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