JPMorgan Chase touted a strong quarter of earnings, although the bank opted to slash the chief executive’s pay in light of a multi-billion dollar trading loss last year.
The bank reported a record profit of $5.7 billion for the fourth quarter, up 53 percent from the previous year. Revenues, too, were strong, rising 10 percent to $23.7 billion.
“The firm’s results reflected strong underlying performance across virtually all our businesses for the fourth quarter and the full year, with strong lending and deposit growth,” chief executive Jamie Dimon said in statement.
But the year was also clouded by a multi-billion dollar trading loss stemming from a bad bet on derivatives. JPMorgan continues to unwind the bungled trade that had racked up $6.2 billion in losses through the third quarter of 2012. JPMorgan said it “experienced a modest loss” during the recent quarter.
In light of the trading losses, the bank’s board opted to reduce Mr. Dimon’s total compensation. That decision was driven by a desire to hold the chief executive accountable for some of the oversight failings that led to the bungled bet, according to several people close to the board.
The board reduced Mr. Dimon’s total compensation for 2012 to $11.5 million from $23 million a year before. While Mr. Dimon’s salary remained the same at $1.5 million, his incentive compensation was slashed to $10 million, paid out in restricted stock.
Despite the overhang, JPMorgan managed to produce record profit, as the economy and credit conditions improved. The bank continued to reduce the money it set aside for potential losses, adding to profits overall. And the bank notched gains in all its major divisions, showing strength in both consumer and corporate banking operations.
Despite the rocky market conditions and uncertainty related to the budget impasse, the corporate-focused businesses reported nice gains. Investment banking fees jumped 54 percent to $1.7 billion, with debt and equity underwriting. Revenue in the commercial banking group hit $1.75 billion, with the tenth consecutive quarter of loan growth.
Income in JPMorgan’s asset management group rose 60 percent to $483 million. JPMorgan has been ramping up the business, as other riskier ventures get crimped by new regulation.
Like other big lenders, the bank’s earnings have also been bolstered by a surge in mortgage lending, driven in part by a series of federal programs that have helped drive down interest rates. As homeowners seize on the low rates, JPMorgan is experiencing a flurry of refinancing applications. The bank is also making bigger gains when those loans are packaged and eventually sold to big investors.
Overall, the mortgage banking group notched profit of $418 million, compared with a loss of $269 million in the previous year.
But those low interest rates also present a challenge for JPMorgan, which is dealing with glut of deposits. The bank reported average total deposits of $404 billion, up 10 percent from a year earlier.
As deposits pile up, the situation is weighing on profitability. The net interest margin, a key measure of a bank’s profitability, continued to shrink, dropping to 2.44 percent from 2.76 percent the previous year.
The bank also continues to face a slew of legal problems.
In the last year, JPMorgan has worked to move beyond some of the issues stemming from the mortgage crisis. Along with competitors, JPMorgan hashed out deals with federal regulators over claims that its foreclosures practices may have led to wrongful eviction of homeowners. Earlier this month, JPMorgan and other agrees $8.5 billion settlement with the Comptroller of the Currency and the Federal Reserve, which ends a costly and flawed review of loans in foreclosure ordered up by the regulators in 2011. The bank spent roughly $700 million this quarter on costs associated with the review.
Still, the bank is dealing with other cases that could prove costly. The New York attorney general, Eric T. Schneiderman, filed a lawsuit against the bank related to Bear Stearns, the troubled unit the JPMorgan bought in the depths of the financial crisis. In the lawsuit, filed in October, the attorney general claimed JPMorgan defrauded investors who bought securities created from shoddy mortgages.
JPMorgan was also hit with two enforcement actions earlier in this week, the first formal sanctions from federal banking regulators over the bank’s multibillion trading loss. Regulators from the Federal Reserve and the Comptroller of the Currency, identified flaws throughout the bank, citing failures in the bank’s ability to asses how big losses might swell as a result of the complex trades. In addition, regulators found that bank executives did not adequately inform board members about the potential losses.
DealBook: JPMorgan’s 4th-Quarter Profit Jumps 53% to $5.7 Billion
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DealBook: JPMorgan’s 4th-Quarter Profit Jumps 53% to $5.7 Billion
