After setting aside $9.2 billion to cover legal expenses, JPMorgan Chase & Co. reported a third quarter loss of $380 million (17 cents per share), compared to a $5.7 billion profit for Q3 2012. This JPMorgan Q3 loss is the first since 2004.
JPMorgan is negotiating with U.S. authorities regarding the sale of mortgage-related investment products leading up to the Great Recession. The talks involve a likely huge settlement.
In September, JPMorgan, a multinational banking and financial services holding company, paid $920 million to settle charges regarding a trading scandal.
In August 2013, JPMorgan was told to pay Russian billionaire Leonard Blavatnik more than $50 million.
JPMorgan Q3 loss “marred with large legal expense”
Chairman and Chief Executive Officer, Jamie Dimon, commented on the company’s results:
“While we had strong underlying performance across the business, 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.”
“The Board continues to see a fair and reasonable settlement with the government on mortage-related issues – and one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request and encouragement of the U.S. Government,” he added.
The JPMorgan Q3 loss of $380 million would have been a profit of $5.8 billion if the one-off charges had been excluded.
JPMorgan’s revenue dropped, even after putting litigation expenses and contingencies aside, and other results were not impressive either. Revenue in JPMorgan’s investment bank was 2% lower than in the third quarter of 2012, and 17% less than in the second quarter, reflecting the unfavorable environment for bond-trading among all Wall Street banks.
Whenever investors talk about the company’s troubles, JPMorgan executives have always pointed to the bank’s profitability. Even after the “London whale” trades resulted in $6 billion in losses last year, the bank still posted record profits.
However, in a Reuters article, David Henry wrote “But the third-quarter loss underscores how legal problems threaten the profitability of a bank that has long boasted of a ‘fortress’ balance sheet.”
JPMorgan’s loss is corporate lawyers’ gain
As JPMorgan’s settlement talks with U.S. authorities heated up, the New York Times comments on how lawyers began aggressively seeking a “lucrative piece of work”. Part of the settlement involves playing the role of a corporate baby-sitter, being a monitor for the bank’s mortgage operations.
Law firms in Washington and New York are collectively making hundreds of millions of dollars representing JP Morgan.
JPMorgan Chase & Co. is America’s largest bank by assets. As of 2012 it is the second largest bank worldwide, after HSBC, with total assets of $2.509 trillion.