JPMorgan Chase reported lower-than-estimated third-quarter profit Tuesday as unexpected legal expenses of $1 billion caught analysts off guard and offset strength in its capital markets and lending businesses.
The bulk of the costs came from setting aside money to resolve government probes into alleged rigging of foreign-exchange rates, Chief Financial Officer Marianne Lake said.
JPMorgan, the biggest U.S. bank, also reported higher-than-expected operating costs, with compensation, technology and marketing all up. Lake cited strong business growth, and added that JPMorgan may breach its annual expense target of $58 billion this year.
"We continue to be focused and diligent on managing expenses," she said on a conference call with analysts.
JPMorgan and other big banks have been trying to bolster profits through cost-cutting for years, as low interest rates and new regulations have crimped revenue growth. But the efforts have been overshadowed by multibillion-dollar fines and higher costs for technology and compliance.
A year ago, JPMorgan reported its first loss since 2004 due to $7.2 billion in litigation expenses. Overall, the bank agreed to pay nearly $20 billion in 2013 to settle various legal issues. Yet other matters, like the foreign-exchange probes, remain unresolved.
"The ongoing high level of litigation expense after last year's ... mega settlement is a bit disturbing," said Chris Kotowski, an analyst with Oppenheimer & Co. "At some point, it ceases to become a 'special' item."
Overall, JPMorgan reported earnings of $5.6 billion, or $1.36 a share, compared with a loss of $380 million a year earlier. Analysts expected earnings of $1.38 a share, on average, according to Thomson Reuters I/B/E/S.
Revenue rose 5 percent to $24.2 billion from $23.1 billion in the third quarter of 2013.
'Model of Stability'
JPMorgan was hit with a technical glitch on Tuesday as its earnings release appeared hours ahead of schedule due to a "human error" at a vendor that handles its investor relations documents.
The earnings report was the first since Chief Executive Officer Jamie Dimon, 58, underwent radiation and chemotherapy for throat cancer. The illness has raised questions about who might succeed him if he steps down.
Dimon said his prognosis remained "excellent," allowing him to maintain a busier schedule, but added that he was still monitoring his health with regular doctor visits.
Dimon told reporters on a conference call that the bank was seeing "a broad-based recovery" in the United States, both in consumer and corporate markets.
A recent uptick in volatility helped JPMorgan's trading business, but Dimon said products that deliver more stable earnings in the retail bank weren't affected by brief market swings.
Revenue from fixed-income, currency and commodity trading rose 2.1 percent to $3.51 billion in the latest quarter compared with a year earlier.
Total investment banking revenue rose 2 percent to $1.54 billion, driven by higher advisory fees. But net income from mortgage banking fell 38 percent $439 million.
"The headline numbers have come out slightly below expectations, but the model of stability is there, and that's ultimately what you want from a bank," said Simon Maughan, head of research at financial analysis firm OTAS Technologies in London.
JPMorgan (JPM) shares fell 0.3 percent at $58 in afternoon trading.
-With additional reporting by Steve Slater in London and Lauren Tara LaCapra in New York; writing by Lauren Tara LaCapra.
10 Financial Land Mines That Can Decimate Your Net Worth
Managed to get that raise or promotion? Fantastic -- now don't go out there and spend it all immediately. In classic "keeping up with the Joneses" fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.
Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they're not actively doing anything with it.
The average American household that carries credit card debt holds a balance of around $15,000. If you're among those who have a credit card balance, you've probably seen the little chart on your monthly statement telling you how much you'll pay in interest over the next several years if you make only the minimum payment. (If you haven't, look at it.) The same chart will also compare that to a "suggested" payment that's slightly higher.
Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can't pay for a consumer good out of pocket, don't finance it.
We don't demonize student loan debt the way we do credit card debt because we see an education as an investment -- and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.
That said, debt is still debt, and the longer you take to pay it off, the more interest you'll pay. Once you've freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.
Whether it's to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you're tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.
Putting aside a little each month could prevent you from getting socked with a hefty bill you can't afford and then need to finance.
No matter your age, you should be adding to your retirement funds -- such as your 401(k) or individual retirement account -- each month. Just setting aside money sporadically won't cut it; you need to identify how much you'll need to live on once you stop working and monitor whether you're on track to reach that amount.
Here's a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you'll need in your retirement portfolio, if you assume that you'll withdraw 4 percent per year to live on during your retirement. In other words, you'd need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you're able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn't wind up netting you the return you thought it would.
The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.
You also want to be careful when purchasing a new home. Buying in a neighborhood that's on the downward spiral or buying the most expensive home on the block, likely won't net you a good return when it's time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value.
Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies' fees and shop around to make sure they're not taking more of your money than they need to be.
If you don't have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.
If you're having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don't, check out a site like PayScale to get a ballpark figure.
If you're not making what you're worth, you're doing more than leaving money on the table; you're also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.
If you don't have proper insurance coverage, you're taking a very big risk that could come back to bite you. Too many people think the worst can't happen to them, but the hard truth is you can't predict the future, and scrimping on sufficient insurance is never a good idea.
Of all the things we're hesitate to part with our money for, adequate insurance coverage should not be one of them. No matter your age, everyone should be properly covered with:
Homeowner's or renter's insurance.
Flood insurance (if you live in a flood-prone area).
Umbrella liability insurance (especially if you own a small business).
If a spouse or children relies on you for support, make sure you have a decent term life insurance policy, as well.