JPMorgan Chase Reports Third-Quarter 2013 Net Loss of $0.4 Billion, or $(0.17) Per Share, on Revenue

JPMorgan Chase Reports Third-Quarter 2013 Net Loss of $0.4 Billion, or $(0.17) Per Share, on Revenue1of $23.9 Billion

Third-Quarter 2013 Net Income of$5.8 Billion, or $1.42 Per Share, Excluding Litigation Expense and Reserve Releases1


Supported Consumers, Businesses and Communities

NEW YORK--(BUSINESS WIRE)-- JPMorgan Chase & Co. (NYSE: JPM):

  • Strong underlying performance across our businesses2
    • Consumer & Community Banking deposits were up 10%; client investment assets were a record $179.0 billion, up 16%; credit card sales volume1was a record $107.0 billion, up 11%; merchant processing volume of $185.9 billion, up 14%
    • Corporate & Investment Bank maintained its #1 ranking for Global Investment Banking fees; client deposits were $386.0 billion, up 10%; assets under custody were a record $19.7 trillion
    • Asset Management achieved its eighteenth consecutive quarter of positive net long-term client flows, with $19 billion for the third quarter; client assets were $2.2 trillion, up 11%; loan balances were a record $90.5 billion
  • Third-quarter results included the following significant items
    • $9.15 billion pretax expense; $7.20 billion after-tax ($1.85 per share after-tax decrease in earnings) for legal expense in Corporate, including reserves for litigation and regulatory proceedings
    • $1.60 billion pretax benefit; $992 million after-tax ($0.26 per share after-tax increase in earnings) from reduced reserves in Consumer & Community Banking
  • Fortress balance sheet remains strong
    • Basel I Tier 1 common1of $145 billion, and ratio of 10.5%
    • Estimated Basel III Tier 1 common1,3ratio of 9.3%
    • Estimated Firm supplementary leverage ratio ("SLR") of 4.7%
    • As planned, resubmitted our capital plan to the Federal Reserve and expect to receive feedback by year-end
  • JPMorgan Chase supported consumers, businesses and our communities
    • $1.6 trillion of credit1provided and capital raised in the first nine months of 2013
      • $221 billion of credit1provided for consumers; originated more than 700,000 mortgages
      • $14 billion of credit1provided for U.S. small businesses
      • $442 billion of credit1provided for corporations
      • $829 billion of capital raised for clients
      • $59 billion of credit1provided and capital raised for nonprofit and government entities, including states, municipalities, hospitals and universities
  • Hired more than 6,000 U.S. veterans and service members since the beginning of 2011
  • Ended the quarter with over 5,600 branches, 32.9 million active online customers and over 1,900 Chase Private Client locations

1

 

For notes on non-GAAP measures, including managed basis reporting, see page 13. For additional notes on financial measures, see page 14.

2

Percentage comparisons noted in the bullet points are calculated versus prior-year third quarter.

3

Includes the estimated impact of final Basel III rules issued on July 2, 2013.

 

JPMorgan Chase & Co. (NYS: JPM) today reported net loss of $0.4 billion for the third quarter of 2013, compared with net income of $5.7 billion in the third quarter of 2012. Earnings per share were $(0.17), compared with $1.40 in the third quarter of 2012. Revenue1 for the quarter was $23.9 billion, compared with $25.9 billion in the prior year. The Firm's return on tangible common equity1 for the third quarter of 2013 was (2)%, compared with 16% in the prior year.

Third-quarter results included legal expense in Corporate of $9.2 billion ($7.2 billion after-tax), and a benefit from reserve releases of $1.6 billion ($992 million after-tax). Excluding these items, third-quarter net income would have been $5.8 billion, or $1.42 per share1.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the Company's results: "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."

Dimon continued: "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."

Commenting on the business performance, Dimon continued: "We maintained our #1 ranking in Global Investment Banking fees and our unparalleled capital raising and advisory capabilities led to ground-breaking transactions and market share gains. Equity Markets revenue was up 20%, driven by broad-based strength across products. In Consumer Banking and Credit Card, our customer satisfaction scores continue to rise and our customer attrition remains low. For the second consecutive year, we led the nation in deposit growth - up 10% from the prior year - more than twice the industry average. Credit card sales volume was a record $107.0 billion, up 11%, and general purpose credit card sales volume growth has outperformed the industry for 22 consecutive quarters. Asset Management continued to have strong performance, with $19 billion of net long-term client flows, the 18th consecutive quarter of positive net long-term client flows. We are seeing continued positive trends in consumer and stability in wholesale - loss rates in mortgage are improving steadily as delinquencies continue to decline, and credit card delinquencies are at 20-year lows across the industry."

Dimon concluded: "We continue our intense focus on our legal, control, and regulatory agenda - we are simplifying our business and making unprecedented investments in controls, which will make our company better and stronger for the long-run. We are extremely gratified that, in light of the issues the Company is facing, our people continue to do an unwavering and excellent job in serving their clients and communities, which you see in the underlying performance of our businesses."

In the discussion below of the business segments and of JPMorgan Chase as a Firm, information is presented on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see page 13. The following discussion compares the third quarters of 2013 and 2012 unless otherwise noted. Footnotes in the sections that follow are described on pages 13 and 14.

CONSUMER & COMMUNITY BANKING (CCB)

 

Results for CCB      2Q13  3Q12
($ millions)  3Q13 2Q13 3Q12  $ O/(U) O/(U) %  $ O/(U) O/(U) %
Net Revenue  $11,082  $12,015  $12,720  $(933) (8)%  $(1,638) 

(13

)%

Provision for Credit Losses   (267)  (19)  1,862   (248) NM    (2,129) NM 
Noninterest Expense   6,867   6,864   6,956   3  -    (89) 

(1

)

Net Income  $2,702  $3,089  $2,355  $(387) (13)%  $347  15%
    

Discussion of Results:

Net income was $2.7 billion, an increase of $347 million, or 15% compared with the prior year, due to lower provision for credit losses and noninterest expense, predominantly offset by lower net revenue.

Net revenue was $11.1 billion, a decrease of $1.6 billion, or 13%, compared with the prior year. Net interest income was $7.1 billion, down $174 million, or 2%, driven by lower deposit margins, spread compression in Credit Card and Auto and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $4.0 billion, a decrease of $1.5 billion, or 27%, driven by lower mortgage fees and related income.

The provision for credit losses was a benefit of $267 million, compared with a provision for credit losses of $1.9 billion in the prior year and a benefit of $19 million in the prior quarter. The current-quarter provision reflected a $1.6 billion reduction in the allowance for loan losses and total net charge-offs of $1.3 billion. The prior-quarter provision reflected a $1.5 billion reduction in the allowance for loan losses and total net charge-offs of $1.5 billion. The prior-year provision reflected a $955 million reduction in the allowance for loan losses and total net charge-offs of $2.8 billion. Prior-year total net charge-offs included $880 million of incremental charge-offs reported in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy.

Noninterest expense was $6.9 billion, a decrease of $89 million, or 1%, from the prior year, driven by lower mortgage servicing expense, partially offset by continued investments in Chase Private Client expansion, and costs related to the control agenda.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted; banking portal ranking is per compete.com, as of August 2013)

  • Return on equity was 23% on $46.0 billion of average allocated capital.
  • Average total deposits were $456.9 billion, up 10% from the prior year and 1% from the prior quarter. According to the FDIC 2013 Summary of Deposits survey, Chase grew deposits more than any other bank for the second year in a row, with a growth rate more than twice the industry average2.
  • Active mobile customers were up 30% over the prior year to 15.0 million, and Chase.com remains the #1 most visited banking portal in the U.S.
  • Client investment assets were a record $179.0 billion, up 16% from the prior year and 4% from the prior quarter.
  • Credit card sales volume2 was a record $107.0 billion, up 11% from the prior year and 2% from the prior quarter. General purpose credit card sales volume growth has outperformed the industry for 22 consecutive quarters2.
  • Merchant processing volume was $185.9 billion, up 14% from the prior year and flat compared with prior quarter. Total transactions processed were 8.9 billion, up 20% from the prior year and 1% from the prior quarter.
  • Auto originations were $6.4 billion, up 2% from the prior year.
  • Mortgage originations were $40.5 billion, down 14% from the prior year and 17% from the prior quarter, including purchase originations of $20.0 billion, up 57% from the prior year and 15% from the prior quarter.

Consumer & Business Banking net income was $762 million, a decrease of $16 million, or 2%, compared with the prior year, due to higher noninterest expense, predominantly offset by higher net revenue.

Net revenue was $4.4 billion, up 2% compared with the prior year. Net interest income was $2.7 billion, up 1% compared with the prior year, driven by higher deposit balances, predominantly offset by lower deposit margins. Noninterest revenue was $1.7 billion, an increase of 5%, driven by higher investment revenue and debit card revenue.

The provision for credit losses was $104 million, compared with $107 million in the prior year and $74 million in the prior quarter. The net charge-off rate was 2.10%, down from 2.33% in the prior year and up from 1.58% in the prior quarter.

Noninterest expense was $3.1 billion, up 5% from the prior year, reflecting continued investments in Chase Private Client expansion, and costs related to the control agenda.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Return on equity was 27% on $11.0 billion of average allocated capital.
  • Average total deposits were $438.1 billion, up 11% from the prior year and 1% from the prior quarter.
  • Ranked #1 in deposits in our three largest markets - New York, Chicago, Houston - and grew share in each. Grew deposit share in 20 of 25 of our largest markets2.
  • Deposit margin was 2.32%, compared with 2.56% in the prior year and 2.31% in the prior quarter.
  • Accounts2 totaled 29.3 million, up 5% from the prior year and 1% from the prior quarter, reflecting strong acquisitions and low customer attrition.
  • Average Business Banking loans were $18.6 billion, up 2% from the prior year and flat compared with the prior quarter. Originations were $1.3 billion, down 1% from the prior quarter and 23% from the prior year.
  • Chase Private Client locations totaled 1,948, an increase of 988 from the prior year and 257 from the prior quarter.

Mortgage Banking net income was $705 million, an increase of $82 million, or 13%, compared with the prior year, driven by lower provision for credit losses and noninterest expense, predominantly offset by lower net revenue.

Net revenue was $2.0 billion, a decrease of $1.7 billion compared with the prior year. Net interest income was $1.1 billion, a decrease of $44 million, or 4%, driven by lower loan balances due to portfolio runoff. Noninterest revenue was $877 million, a decrease of $1.6 billion, driven by lower mortgage fees and related income.

The provision for credit losses was a benefit of $1.0 billion2, compared with a provision for credit losses of $524 million in the prior year. The current quarter reflected a $1.25 billion reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends. The prior year included a $900 million reduction in the allowance for loan losses. Net charge-offs were $206 million, compared with $1.4 billion in the prior year. Prior-year total net charge-offs included $825 million of incremental charge-offs reported in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy.

Noninterest expense was $1.9 billion, a decrease of $223 million, or 11%, from the prior year, due to lower servicing expense.

Mortgage Production pretax income was $90 million, a decrease of $997 million from the prior year, reflecting lower volumes and lower margins, partially offset by lower repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $584 million, a decrease of $1.2 billion, or 67%, from the prior year, reflecting lower volumes from rising rates and lower revenue margins. Production expense2 was $669 million, a decrease of $9 million from the prior year. Repurchase losses for the current quarter reflected a benefit of $175 million, compared with losses of $13 million in the prior year and a benefit of $16 million in the prior quarter. The current quarter reflected a $300 million reduction in repurchase liability and lower realized repurchase losses, compared with a $218 million reduction in repurchase liability in the prior year and a $185 million reduction in repurchase liability in the prior quarter.

Mortgage Servicing pretax loss was $406 million, a decrease of $247 million from the prior year. Mortgage net servicing-related revenue was $632 million, a decrease of $122 million, or 16%, from the prior year, driven by lower revenue from an exited non-core product and lower gains on Government National Mortgage Association ("Ginnie Mae") buy outs. MSR risk management was a loss of $180 million, compared with income of $150 million in the prior year. Servicing expense was $858 million, a decrease of $205 million from the prior year, reflecting lower costs associated with the Independent Foreclosure Review and lower servicing headcount, partially offset by higher expense for foreclosure-related matters. The current quarter included approximately $200 million of expense related to refined estimates of servicing liabilities resulting from foreclosure delays.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Mortgage application volumes were $40.4 billion, down 45% from the prior year and 38% from the prior quarter.
  • Period-end total third-party mortgage loans serviced were $831.1 billion, up 2% from the prior year and flat compared with the prior quarter.

Real Estate Portfolios pretax income was $1.5 billion, up $1.4 billion from the prior year. Net revenue was $809 million, a decrease of $197 million, or 20%, from the prior year. The decrease was due to higher loan retention driving lower noninterest revenue and a decline in net interest income, resulting from lower loan balances due to portfolio runoff.

The provision for credit losses was a benefit of $1.0 billion, compared with a provision for credit losses of $520 million in the prior year. The current-quarter provision reflected a $1.25 billion reduction in the allowance for loan losses, $750 million from the purchased credit-impaired allowance and $500 million from the non credit-impaired allowance, due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends. The prior year provision included a $900 million reduction in the allowance for loan losses. Net charge-offs were $204 million, compared with $1.4 billion in the prior year. Prior-year total net charge-offs included $825 million of incremental charge-offs reported in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy. Home equity net charge-offs were $218 million (1.42% net charge-off rate1), compared with $1.1 billion (6.22% net charge-off rate1) in the prior year. Subprime mortgage net recoveries were $4 million (0.21% net recovery rate1), compared with net charge-offs of $152 million (6.89% net charge-off rate1). Prime mortgage, including option ARMs, net recoveries were $11 million (0.09% net recovery rate1), compared with net charge-offs of $143 million (1.37% net charge-off rate1).

Noninterest expense was $375 million, a decrease of $11 million, or 3%, compared with the prior year.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted. Average loans include PCI loans)

  • Mortgage Banking return on equity, including Mortgage Production, Mortgage Servicing and Real Estate Portfolios, was 14% on $19.5 billion of average allocated capital.
  • Average home equity loans were $80.7 billion, down $12.6 billion.
  • Average mortgage loans were $89.7 billion, down $883 million.
  • Allowance for loan losses was $7.7 billion, compared with $11.3 billion.
  • Allowance for loan losses to ending loans retained, excluding PCI loans1, was 2.39%, compared with 4.63%.

Card, Merchant Services & Auto net income was $1.2 billion, an increase of $281 million, or 29%, compared with the prior year, driven by lower provision for credit losses, partially offset by lower net revenue.

Net revenue was $4.6 billion, down $91 million, or 2%, compared with the prior year. Net interest income was $3.3 billion, down $149 million compared with the prior year, primarily driven by spread compression in Credit Card and Auto. Noninterest revenue was $1.3 billion, up $58 million compared with the prior year, primarily driven by higher net interchange income, auto lease income and merchant servicing revenue, largely offset by lower revenue from an exited non-core product.

The provision for credit losses was $673 million, compared with $1.2 billion in the prior year and $564 million in the prior quarter. The current-quarter provision reflected lower net charge-offs and a $351 million reduction in the allowance for loan losses due to lower estimated losses reflecting improved delinquency trends and restructured loan performance. The prior-year provision included a $55 million reduction in the allowance for loan losses. The Credit Card net charge-off rate1 was 2.86%, down from 3.57% in the prior year and 3.31% in the prior quarter; the 30+ day delinquency rate1 was 1.68%, down from 2.15% in the prior year and 1.69% in the prior quarter. The Auto net charge-off rate was 0.35%, down from 0.74% in the prior year and up from 0.18% in the prior quarter.

Noninterest expense was $1.9 billion, flat from the prior year.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Return on equity was 32% on $15.5 billion of average allocated capital.
  • #1 credit card issuer in the U.S. based on outstandings2; #1 global Visa issuer based on consumer and business credit card sales volume2.
  • Period-end Credit Card loan balances were $124.0 billion, flat compared with the prior year and the prior quarter. Credit Card average loans were $123.9 billion, flat compared with the prior year and up 1% from the prior quarter.
  • Card Services net revenue as a percentage of average loans was 12.22%, compared with 12.46% in the prior year and 12.59% in the prior quarter.
  • Average auto loans were $50.4 billion, up 4% from the prior year and flat compared with the prior quarter.

CORPORATE & INVESTMENT BANK (CIB)

 

Results for CIB      

2Q13

 

3Q12

($ millions)  3Q13 2Q13 3Q12  $ O/(U) O/(U) % $ O/(U) O/(U) %
Net Revenue  $8,189  $9,876  $8,360   $(1,687) (17)% $(171) (2)%
Provision for Credit Losses   (218)  (6)  (60)   (212) NM   (158) (263)
Noninterest Expense   4,999   5,742   5,350    (743) (13)  (351) (7)
Net Income  $2,240  $2,838  $1,992   $(598) (21)% $248  12%
   

Discussion of Results:

Net income was $2.2 billion, up 12% compared with the prior year. These results primarily reflected lower noninterest expense and a higher benefit from the provision for credit losses, partially offset by lower net revenue. Net revenue was $8.2 billion, compared with $8.4 billion in the prior year. Net revenue included a $397 million loss from debit valuation adjustments ("DVA") on structured notes and derivative liabilities; the prior year included a loss from DVA of $211 million. Excluding the impact of DVA, net income was $2.5 billion1, up 17% from the prior year, and net revenue was $8.6 billion1, flat compared with the prior year.

Banking revenue was $2.9 billion, up 2% from the prior year. Investment banking fees were $1.5 billion, up 6% from the prior year, driven by higher equity underwriting fees of $333 million, up 42% from the prior year, and higher debt underwriting fees of $855 million, up 6% from the prior year, partially offset by lower advisory fees of $322 million, down 17% from the prior year. Treasury Services revenue was $1.1 billion, flat compared with the prior year. Lending revenue was $351 million, primarily reflecting net interest income on retained loans and fees on lending-related commitments.

Markets & Investor Services revenue was $5.3 billion, down 4% from the prior year. Fixed Income Markets revenue was $3.4 billion, down 8% compared with a strong prior year. The prior year included a modest loss from the synthetic credit portfolio. Equity Markets revenue was $1.2 billion, up 20% from the prior year, driven by broad-based strength across products and regions. Securities Services revenue was $1.0 billion, up 3% from the prior year. Credit Adjustments & Other revenue was a loss of $409 million, compared with a loss of $225 million in the prior year; both periods were predominantly driven by the impact of DVA.

The provision for credit losses was a benefit of $218 million, compared with a benefit of $60 million in the prior year. The ratio of the allowance for loan losses to period-end loans retained was 1.09%, compared with 1.35% in the prior year. Excluding the impact of the consolidation of Firm-administered multi-seller conduits and trade finance loans, the ratio of the allowance for loan losses to period-end loans retained1 was 2.01%, compared with 2.92% in the prior year.

Noninterest expense was $5.0 billion, down 7% from the prior year, primarily driven by lower compensation expense on lower reported revenue. The compensation ratiofor the current quarter was 27%, excluding the impact of DVA1.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted, and all rankings are according to Dealogic)

  • Return on equity was 16% on $56.5 billion of average allocated capital (17%excluding DVA1).
  • Ranked #1 in Global Investment Banking Fees for the nine months ended September 30, 2013.
  • Ranked #1 in Global Debt, Equity and Equity-related; #1 in Global Long-Term Debt; #1 in Global Syndicated Loans; #2 in Global Announced M&A; and #2 in Global Equity and Equity-related, based on volume, for the nine months ended September 30, 2013.
  • Average client deposits and other third-party liabilities were $386.0 billion, up 10% from the prior year and 5% from the prior quarter.
  • Assets under custody were a record $19.7 trillion, up 8% from the prior year and 4% from the prior quarter.
  • International revenue was $4.1 billion, up 6% from the prior year, representing 50% of total revenue.
  • Period-end total loans were $108.0 billion, down 3% from both the prior year and prior quarter. Nonaccrual loans were $237 million, down 70% from the prior year and 37% from the prior quarter.
  • Period-end trade finance loans were $34.4 billion, down 2% from the prior year and 6% from the prior quarter.

COMMERCIAL BANKING (CB)

 

Results for CB      

2Q13

 

3Q12

($ millions)  3Q13 2Q13 3Q12  $ O/(U) O/(U) % $ O/(U) O/(U) %
Net Revenue  $1,725  $1,728 $1,732   $(3) -  $(7) - 
Provision for Credit Losses   (41)  44  (16)   (85) NM   (25) (156)
Noninterest Expense   661   652  601    9  1   60  10 
Net Income  $665  $621 $690   $44  7% Read Full Story

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