JP Morgan Trims Legal Costs and Returns to Profit

By Ashley Jefferson,
Money and Investing Writer

JP Morgan Chase (NYSE: JPM) & Co. reported its third-quarter earnings on Tuesday October 14, 2014.
Earnings results just missed the analysts’ estimates due to the amount of higher legal expenses that outweighed an uptick in trading revenue.

The bank reported a Net Income of $5.57 billion, which is a significant improvement of the year prior of $380 million.

Revenues rose 4.9 percent to $24.25 billion. This exceeds the analysts’ estimate of $24 billion. When analyzed on a per share basis, the banks profit was $1.36 per share versus the 17-cent loss the year prior. Thomson Reuters polled analysts and discovered that they had expected earnings of $1.38 per share.

Legal expenses in the third quarter rose to $1.1 billion from 700 million in the second quarter. According to a Wall-Street Journal article, the bank’s Chief Financial Officer attributes the increase in legal expense to “foreign-exchange settlement talks that further progressed.”

In the coming weeks, investors will also find out what costs will be associated with the settling of the U.K.’s financial regulator in the coming weeks.

“While challenges remain in the global economic recovery, the U.S. economy is an exception, showing signs of steady improvement,” said Chairman and CEO Jamie Dimon in the earnings release.

“Corporate America is in good shape with strong balance sheets and employment trends continue to be positive.”
What are the drivers of the increase in earnings? For starters, deposits in consumer and business banking rose 9 percent while credit card sales volume jumped 12 percent.

According to CNN Money, Mortgage originations jumped 26 percent from last quarter. This jump is a sign that the housing market remained active despite fear that it would cool off.

As JP Morgan took in more money, analysts are also discovering that they did not lend out as much. As of the third quarter, the bank was only lending 56 cents to every dollar. When stacked up against its competitors, JP Morgan is on the low side of the deposits to lending ratio.

Citigroup’s (NYSE: C) loan to deposit ratio is 67 percent, Wells Fargo’s (NYSE: WFC) is 76 percent, and Bank of America (NYSE: BAC) comes in the highest at 80 percent.

JP Morgan holds more excess deposits than two out of its three major competitors – combined. Bank of America, Citigroup, and Wells Fargo’s combined excess deposits is $766 billion.

The bank alone has $590 billion and is the seventh largest bank in the country in terms of excess deposits.
Revenue from fixed-income markets rose 2.1 percent from a year ago to $3.51 billion.

“In markets, we saw increased activity and better performance overall, particularly in currencies and emerging markets,” Dimon said in a statement. Equity Market Revenue fell marginally 1.4 percent from the prior year to $1.23 billion.

Dimon has been undergoing treatment for throat cancer, and says that he’s been working but also made sure to take care of himself and get rest as well.

“I never stopped working, though I did take care of myself, get a lot of rest,” Dimon said on a conference call with media Tuesday. “I’m starting to build back my schedule. But I feel good and I’m happy the treatments are over.”

A version of this article appeared in the Tuesday, Oct. 21st print edition.

Contact Ashley at
ashley.jefferson@student.shu.edu

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