JPMorgan Profit Beats Estimates, Despite Madoff Penalties

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JPMorgan earnings
Kathy Willens/AP
By Tanya Agrawal and David Henry

JPMorgan Chase reported a better-than-expected adjusted quarterly profit as the biggest U.S. bank kept a lid on costs and set aside less money to cover bad loans.

The bank, which agreed last week to pay $2.6 billion to settle government and private claims over its handling of accounts of fraudster Bernie Madoff, said fourth-quarter net income fell 7.3 percent to $5.28 billion, or $1.30 a share.

Adjusted for special items, the company earned $1.40 a share, beating the average analyst estimate of $1.35, according to Thomson Reuters I/B/E/S.

The results took into account gains from the sale of Visa (V) shares and One Chase Manhattan Plaza and legal expenses related to the Madoff settlements.

JPMorgan (JPM), which agreed to pay nearly $20 billion in 2013 to settle assorted legal claims, had estimated that settlement of the Madoff claims would subtract $850 million from fourth-quarter earnings.

"It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward," Chairman and Chief Executive Officer Jamie Dimon said in a statement Tuesday.

JPMorgan shares, which have been trading this month at their highest levels since 2000, were up 0.5 percent at $58 before the opening bell on the New York Stock Exchange. %VIRTUAL-article-sponsoredlinks%The stock rose 33 percent in 2013, in line with the 35 percent rise in the KBW Bank index and slightly ahead of the 29 percent gain in Standard & Poor's 500 stock index.

Special items highlighted by the bank subtracted 10 cents a share from fourth-quarter earnings, compared with a two-cent boost in the same quarter of 2012.

The special items included a benefit of 21 cents a share from the sale of Visa shares and 8 cents from the sale of One Chase Manhattan Plaza and an expense of 27 cents a share from legal bills, including the Madoff settlements.

Three months ago, JPMorgan reported its first quarterly loss under Dimon after recording after-tax expenses of $7.2 billion to settle government and private investigations.

The allegations involved, among other things, shoddy dealing in mortgage instruments before the financial crisis, derivatives trading in London and pricing in electric power markets, as well as failing to report suspicions of wrongdoing by Madoff.

Investors have been looking for reassurance from the company that the worst of its legal expenses are behind it.

Assets Shrink

Noninterest expenses fell 3 percent to $15.55 billion during the quarter, while provisions for bad loans fell 84 percent to $104 million.

JPMorgan said its assets shrank to $2.42 trillion at the end of December from $2.46 trillion three months before and $2.36 trillion a year earlier, but it remains the biggest U.S. bank by that measure.

Equity underwriting revenue soared 65 percent to $436 million. But investment banking fees were pulled down by lower debt underwriting, where revenue declined 19 percent, and advisory fees, which fell 7 percent. Altogether, investment banking fees declined 3 percent.

The bank's market share in equity underwriting rose to 8.3 percent in 2013, moving it to second place in the industry from fourth. Goldman Sachs Group (GS) led with 11.4 percent.

Higher interest rates on home mortgage loans weighed on JPMorgan, like the rest of the banking industry.

JPMorgan lost $274 million, pre-tax, making mortgage loans, compared with a profit of $789 million a year earlier as margins declined and as the company was unable to reduce expenses as quickly as lending volumes declined.

The bank said it expected to lose money making mortgages again in the first quarter of this year.

Reflecting a slowdown in loan refinancing, total U.S. home mortgage borrowing was down 50 percent at the end of December compared with a year earlier and down by a quarter from the end of September, according to the Mortgage Bankers Association.

-Reporting by David Henry and Lauren Tara LaCapra in New York and Tanya Agrawal in Bangalore.

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