Early Friday, JPMorgan (JPM) reported its first loss under CEO Jamie Dimon in the quarter, as it took a $7.2 billion after-tax charge to cover rising legal and regulatory costs.
In the past year or so, the bank — once considered the industry’s darling for its lack of litigation — has racked up an estimated $14.7 billion in such expenses, according to estimates compiled by Tiburon Strategic Advisors.
The company said its latest pretax legal charge was $9.2 billion, compared with $684 million a year earlier. It has litigation reserves of about $23 billion, but believes it’s possible for its losses to top these reserves by $5.7 billion.
While politicians have put JPMorgan in the legal spotlight, Wall Street analysts insist the company is on solid ground.
“If you can get past the headlines, this is still an extremely strong franchise, both in the U.S. and globally,” said Fred Cannon, director of research and chief equity strategist at KBW, said Friday on CNBC, adding that the mortgage settlements represent “an opportunity, not as more of a distraction from a long-term value.”
Said Dimon in a statement: “While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense. We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen them. While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters.”
For the quarter ended Sept. 30, the bank had losses of $380 million, or $0.17 a share, vs. profits of $5.71 billion, or $1.40 a share, a year ago. Earnings, after adjustments for one-time items, were $1.42 a share, topping analysts’ estimates of $1.30. Revenue for the quarter was $23.9 billion, compared with $25.9 billion in the prior year.
In early August, JPMorgan said its mortgage-bond sales practices were under criminal investigation by U.S. prosecutors in California. This could lead to a potential $11 billion settlement.
“The board continues to seek a fair and reasonable settlement with the government on mortgage-related issues — and one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request or encouragement of the U.S. government,” Dimon noted.
The unit’s net income was $476 million, a 7% jump from the prior year. Net revenue improved 12% to $2.8 billion. Noninterest revenue expanded 15% to $2.2 billion due to net client inflows, the effect of higher market levels and higher placement fees, according to the bank.