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JPMorgan's main businesses lukewarm in first quarter

A trader works at the JP Morgan trading post on the floor of the New York Stock Exchange in New York July 13, 2012. REUTERS/Shannon Stapleto
A trader works at the JP Morgan trading post on the floor of the New York Stock Exchange in New York July 13, 2012. REUTERS/Shannon Stapleto

By David Henry and Dan Wilchins

NEW YORK (Reuters) - JPMorgan Chase & Co posted higher first-quarter profit on Friday as it spent much less money on mortgage-related litigation, but most of its major businesses turned in tepid performances, and the bank's overall revenue declined.

The results reflected the pressure the largest U.S. bank is under, even as it recovers from the disastrous "London Whale" trading losses that cost more than $6 billion last year. Many of the gains came from accounting judgments rather than increased customer demand. JPMorgan shares dipped 0.2 percent to $49.21.

Profit in its consumer banking segment fell 12 percent to $2.6 billion, and ignoring accounting adjustments, its corporate and investment banking profit dropped 2 percent to $2.5 billion.

The difficulty in the businesses bodes poorly for other Wall Street banks, which are due to report next week. Shares of Goldman Sachs Group Inc fell 1.2 percent to $147.31, and Citigroup Inc, due to report on Monday, fell 1.1 percent to $44.36.

For JPMorgan, commercial banking and asset management profit rose, but the growth was too small in dollar terms to affect overall results.

Chief Executive Jamie Dimon said in a statement that loan growth was soft across the industry in the first quarter compared with the fourth quarter, noting that small businesses remained cautious.

In some areas, the bank made more loans. Mortgage lending volume, for example, rose to $52.7 billion in the quarter from $38.4 billion last year. The gain came even as Wells Fargo & Co, the biggest U.S. mortgage lender, said its volume slowed.

But JPMorgan's profit from home lending fell. As the housing market recovers, more banks are stepping into the mortgage market, weighing on profitability.

With interest rates low, lending profits are broadly lower across the industry. Banks' highest-yielding assets are maturing, only to be replaced with lower-yielding ones, and funding costs are not falling nearly as much. JPMorgan's net interest margin, a measure of loan profitability, fell to 2.37 percent from 2.61 percent.

Its overall net income rose to $6.53 billion, or $1.59 a share, from $4.92 billion, or $1.19 a share, a year earlier. Total revenue fell 3.6 percent to $25.12 billion. Results for both periods included special items.

JPMorgan's corporate and private equity unit, which housed the group that posted the London Whale trading losses, generated a $250 million profit in the first quarter, compared with a $1.02 billion loss in the same period a year earlier. Year-ago revenue was reduced by $1.4 billion due to the Whale credit derivatives trades.

The improved performance of the corporate and private equity unit helped results in the quarter, but the bank benefited even more from its decision to set aside less money to cover legal expenses. The bank's litigation expenses were close to nil in the first quarter of 2013 versus about $2.5 billion in last year's first quarter.

JPMorgan's Dimon said on a conference call with journalists that the bank set aside less money to cover mortgage litigation because it had set aside so much in prior quarters.

Speaking on CNBC, Chief Financial Officer Marianne Lake said the bank's mortgage-related litigation expenses have fallen. JPMorgan has faced investigations, lawsuits and disputes over many parts of its mortgage business, including the way it processed foreclosures.

The bank made another accounting decision that helped it in the quarter, setting aside $617 million to cover credit losses, less than the $726 million it added to reserves in last year's first quarter.

The bank also drew down on reserves it had previously set aside to cover bad loans. By reducing reserves for future losses on mortgage and credit card loans, the company added 18 cents a share to results.

In the wake of the credit derivatives losses that cost the bank so much money, it said it is working harder to improve its controls and compliance.

The Federal Reserve told JPMorgan last month to fix flaws in the way it determines how much capital the bank can return to shareholders. The central bank also said JPMorgan could increase its dividend to 38 cents a share, and buy back $6 billion of its shares.

But the episode was a black eye for Dimon, who admitted in his annual letter to shareholders earlier this week: "The London Whale was the stupidest and most embarrassing situation I have ever been a part of."

JPMorgan took big bets starting in the first quarter last year on the relative performance of different indexes linked to corporate credit. Its positions were so large that a trader on a desk at the bank's Chief Investment Office in London came to be known as the London Whale.

(Reporting by David Henry and Dan Wilchins in New York; Editing by Jeffrey Benkoe)

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