JPMorgan Chase profits down 7.3% after Madoff legal costs

JPMorgan Chase profits were down 7.3% during the last quarter of 2013 after legal costs related to the Bernie Madoff case punctured earnings gains.

Net income for Q4 2013 was $5.3 billion ($1.30 per share) compared to $5.7 billion ($1.39 per share) in Q4 2012.

A Bloomberg survey of 22 experts had predicted earnings per share of $1.37 on average.

According to JPMorgan Chase, income after tax was down $1.1 billion because of “one-off items”.

JPMorgan and Bernie Madoff

Bernie Madoff was a former investment advisor, financier, stockbroker, and non-executive chairman of the NASDAQ stock market. He was also the operator of a Ponzi scheme, considered to be the biggest financial fraud in US history. Madoff was convicted of massive fraud and sentenced to 150 years in prison.

While the massive fraud operations were underway JPMorgan was Madoff’s principal banker. In fact, JPMorgan and Madoff had had a business relationship for several decades.

While in prison Madoff claimed that JPMorgan knew about the scam that he was operating through the bank.

Earlier this month JPMorgan agreed to pay $2.6 billion to settle private and government claims. Manhattan US attorney Preet Bharara said the bank acknowledged that it had ignored warning signs for fifteen years that Madoff was using his account with them in fraudulent activities. By acknowledging this and agreeing to the settlement, the bank and its staff avoided prosecution.

JPMorgan Chase has had to pay out approximately $30 billion in settlements for various violations over the last 24 months, including the “London whale” trading loss settlement in which a single person accumulated losses of $6 billion. The bank was allegedly involved in the manipulation of the London inter-bank offered rate (Libor).

Jamie Dimon, JPMorgan Chase’s Chairman and Chief Executive Officer, commented:

“We are pleased to have made progress on our control, regulatory and litigation agendas and to have put some significant issues behind us this quarter. We reached several important resolutions – Global RMBS, Gibbs & Bruns, and Madoff. It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward. This will allow us to focus on what we are here for: serving our clients and communities around the world. We remained focused on building our four leading franchises, which all continued to deliver strong underlying performance, for the quarter and the year.”

“The Corporate & Investment Bank was #1 in global IB fees in 2013, with #1 positions in global debt and equity, syndicated loans, and U.S. announced M&A, and we gained share in Banking and Markets. Consumer & Community Banking deposits were up 8% for the fourth quarter of 2013; client investment assets were up 19%; and general purpose credit card sales volume growth has outperformed the industry for 23 consecutive quarters.

Gross investment banking revenue3 was a record $1.7 billion for the year, up 5%. Asset Management also had excellent performance with positive net long-term client flows of $90 billion for the full year 2013 and record loan balances, up 21%.”

JPMorgan Chase announced that revenue fell 1.1% to $24.1 billion, expenses dropped by 3.1% to $15.6 billion. Full-year 2013 profit fell to $17.9 billion (minus 16%).

JPMorgan Chase still has issues pending

Unresolved inquiries include whether JPMorgan violated anti-bribery laws in Asia and the manipulation of interest rates and currency benchmarks.

There are also probes underway on the bank’s activities regarding mortgage-bond trades after the 2008 financial crisis.

In an article in The Street, Shanthi Bharatwaj writes that three factors contributed to JPMorgan’s fall in profits during the fourth quarter:

  • A sharp drop in mortgage banking production.
  • Weak investment banking performance.
  • A surge of legal and other one-off expenses.

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