JPMorgan Chase & Co. (NYSE:JPM), the largest U.S. bank by assets, reported fourth-quarter earnings that surpassed analysts' expectations, helped by lower loan-loss reserves that offset declining investment-bank revenue. Shares advanced in premarket trade.
Net income for the three months ended Dec. 31 dropped 7.3 percent to $5.28 billion, or $1.30 a share, from $5.69 billion, or $1.39 a share, in the year-earlier period, the New York-based bank said in a statement today.
Excluding a charge of 27 cents a share in legal costs, profit grew to $1.40 a share in the fourth quarter, from $1.35 a share a year earlier, beating the $1.35 a share average expectation of analysts polled by Reuters and the $1.37 a share average estimate of analysts surveyed by Bloomberg.
Revenue fell 1 percent to $24.1 billion, but topped analysts’ expectations.
JPMorgan took a charge of $1.1 billion in the fourth quarter to resolve some of its biggest legal headaches.
One of those legal expenses was the settlement over the bank's involvement in the Ponzi scheme of Bernard Madoff. On Jan. 8, the bank agreed to pay $2.6 billion to settle government and private claims over its handling of Madoff accounts. It estimated then that this would subtract $850 million from fourth-quarter earnings to cover expenses that it had not accounted for in reserves.
"It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward," JPMorgan Chief Executive Officer Jamie Dimon said in the statement.
JPMorgan's legal problems have weighed on the bank's earnings. The bank posted a third-quarter loss in October, its first quarterly loss in 10 years. In November, JPMorgan paid the Justice Department a record $13 billion to resolve allegations linked to the sale of risky mortgage securities during the housing bubble. That came on the heels of a $4.5 billion settlement with institutional investors who suffered losses on mortgage securities purchased from JP Morgan in the run-up to the financial crisis.
JPMorgan continued to benefit from lower reserves for bad loans. The bank’s earnings were boosted by $775 million, or 20 cents per share, due to reduced reserves in real estate portfolios and card services.
Overall provisions for credit losses slid to $104 million last quarter from $656 million the year before. Net charge-offs totaled $1.3 billion, down from $1.8 billion the year before.
JPMorgan shares inched up 0.7 percent to $58.08 in pre-market trade at 9 a.m. The shares rallied 33 percent in 2013, ahead of the 29 percent gain in the S&P 500 (INDEXSP:.INX). The stock closed down 1.4 percent yesterday, giving the company a market value of $216.9 billion.
Earnings from the bank's corporate and investment banking division plunged 57 percent to $858 million, driven by a $1.5 billion charge from changing the valuation of some over-the-counter derivatives to incorporate funding costs. Revenue at the unit declined 21 percent to $6.02 billion.
Profit from consumer and community banking jumped 19 percent to $2.37 billion on lower provisions for bad loans and expenses. Revenue at the unit fell 8 percent to $11.3 billion.
Mortgage fees and related income plummeted 46 percent to $1.09 billion in the fourth quarter, from $2.04 billion in the year-earlier period. Home-loan originations crumbled 54 percent to $23.3 billion.
JPMorgan is the first U.S. bank to report fourth-quarter results. Wells Fargo & Co. (NYSE:WFC), the biggest U.S. mortgage lender, posted later today an 11 percent increase in fourth-quarter profit, buoyed by the elimination of thousands of jobs in its home-loan business in the second half of the year.
Bank of America Corp. (NYSE:BAC) is set to release its quarterly results tomorrow. Citigroup Inc. (NYSE:C) and Goldman Sachs Group Inc. (NYSE:GS) are scheduled to report on Jan. 16, whereas BNY Mellon (NYSE:BK) is due on Jan. 17.
All four U.S. bank industries are expected to show year-over-year growth in recurring earnings in the fourth quarter, but the Financial Conglomerates and Major Banks industries are expected to lead all groups, FactSet said in a note to clients yesterday.