JPMorgan: Profits Fall, But the House Is in Order

Dirty Money

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Beleaguered by litigation, JPMorgan Chase (NYSE:JPM) jogged, rather than sprinted, across the fourth-quarter finish line in 2013. The firm reported somewhat underwhelming year-end results on Tuesday morning, reflecting a year in which the bank, America’s largest by assets, reported its first quarterly loss in nearly a decade.

Fourth-quarter revenue fell 1 percent on the year to $24.1 billion, above the mean analyst estimate of $23.8 billion. Net income fell 7 percent on the year to $5.3 billion — earnings fell 6.5 percent to $1.30 per share, below the mean analyst estimate of $1.32 per share. Return on tangible common equity, a measure of the bank’s earnings relative to stockholders’ common equity, fell 1 percentage point to 14 percent.

For the full year, revenue was flat at $99.8 billion, above the mean analyst estimate of $98.7 billion. Net income fell about 16 percent to $17.9 billion — earnings fell about 16.3 percent to $4.35 per share, below the mean analyst estimate of $4.41 per share.

JPMorgan ended the year with a “fortress balance sheet,” as prescribed by Basel banking regulations. JPMorgan reported Basel 1 Tier 1 common capital of $149 billion, a ratio of 10.7 percent, and estimated Basel III Tier 1 common capital of $151 billion, a ratio of 9.5 percent.

Like many other major financial institutions, JPMorgan reported ongoing problems with its mortgage production unit. The unit posted a pretax loss of $274 million, down by $1.1 billion from the year-ago period, “reflecting lower volumes, lower margins and higher legal expense, partially offset by lower repurchase losses,” according to a company letter to shareholders. Mortgage production revenue was also down $1.1 billion, a 69 percent decline, while expenses were up on legal fees.

JPMorgan’s credit unit reported lower charge-off rates, which is both good for the bank and suggests a smarter, if not more financially stable, consumer. JPMorgan nearly halved its provision for credit losses and reduced its provision for loan losses by $300 million. The firm reported a credit card charge-off rate of 2.85 percent, down from 3.5 percent in the year-ago period. The 30-day delinquency rate fell from 2.1 percent to 1.67 percent.

Shares of JPMorgan are up more than 25 percent on the year but have followed the market this year to date and have edged down a fraction over the past few weeks. As an industry, financials are expected to have another good year. JPMorgan’s results reflect a strong business paying the price of getting its house in order in the wake of the financial crisis.

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