JPMorgan Chase & Co. Earnings: Solid, With a Hint of Litigation Risk

Before you go, we thought you'd like these...
Before you go close icon

JPMorgan Chase kicked off bank earnings season Tuesday with a narrow miss. The bank reported diluted earnings per share of $1.36, missing the consensus expectation of $1.38.

Legal charges
JPMorgan's miss was largely the result of one line item: legal expenses. The bank reported unexpectedly high companywide legal charges of $1.1 billion.

This could be the start of something bigger. On the quarterly conference call, CFO Marianne Lake noted that outsized expenses resulted from an investigation into the company's foreign-exchange trading. Reports circulated Tuesday that JPMorgan's top currency trader in London had left the company. JPMorgan took the charge as part of a potential settlement for foreign-exchange collusion involving other major banks.

But don't let that sway your opinion about JPMorgan's profitability. The bank's core business lines continue to perform spectacularly. The consumer and community banking segment posted return on equity of 19%, with deposits up 9% year over year. Expenses were held to just 56% of total revenue, in line with the preceding quarter and what you would expect from the best-of-breed banking businesses.

This performance is notable because the weakest unit within the community banking business -- mortgage banking -- is also one of the largest at nearly one-third of its equity base. With the refinance index down 30% from the year-ago period, JPMorgan's spot as the No. 2 mortgage originator isn't contributing to earnings like it did in 2013. 

Its investment bank also kept its No. 1 spot in fees, while showing evidence of a revival in trading revenue. FICC-related trading revenue was up 2% from the previous quarter. The fourth quarter could be even better: JPMorgan's fiscal third quarter ended before a resurgence of volatility in October.

Finally, the asset management division put up some of its best-ever numbers. Assets under management hit a new record of $1.7 trillion, an 11% improvement year over year. Loans were up 15.5% from the year-ago period, and there is room for additional growth. Its average deposits exceed average loans by nearly $50 billion.

The Final word
JPMorgan delivered with a 13% return on tangible common equity, while maintaining its trademark "fortress" balance sheet. Its loan loss reserves fell roughly $440 million from the second quarter, in line with declining nonperforming loans. Credit quality remains strong, with the bank forecasting that net charge-offs would come in under $5 billion for the full year, better than the previous guidance.

While news about a foreign-exchange investigation might have some fearing a second London Whale event, JPMorgan's third-quarter earnings reveal that the company remains a well-capitalized, profitable banking machine. 

JPMorgan + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

The article JPMorgan Chase & Co. Earnings: Solid, With a Hint of Litigation Risk originally appeared on

Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase and recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading