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JPMorgan Swings to Third-Quarter Profit, Misses Estimates

Jamie Dimon 008

JPMorgan Chase & Co., the biggest U.S. bank, swung to a profit in the third quarter from a loss a year earlier as debt-trading revenue rose and legal costs narrowed.

The stock dropped 17 cents to $57.99 at 4 p.m. in New York and fell as much as 3.6 percent earlier after $1 billion in legal expenses caused earnings to miss some analysts’ estimates. The money will help cover costs related to an investigation into the manipulation of foreign-exchange rates, Chief Financial Officer Marianne Lake said on a conference call today.

Chief Executive Officer Jamie Dimon, 58, has been contending with climbing expenses as the bank bolsters regulatory compliance and computer security. While revenue beat analysts’ estimates, helped by higher-than-expected fixed-income trading revenue, Lake said that the sale of the bank’s commodities unit would cut the debt unit’s revenue by $300 million starting in the fourth quarter.

“The fourth quarter so far, for what it’s worth, has been a bit more mixed and there generally has been some change in market sentiment with respect to global growth and inflation,” Lake, 45, said. “So we expect it to be a bit choppier in the fourth quarter.”

‘Heavy’ Expenses

Third-quarter net income was $5.6 billion, or $1.36 a share, compared with a loss of $380 million, or 17 cents, a year earlier, JPMorgan said today in a statement. Legal costs cut earnings by 26 cents a share, more than some analysts predicted. The average estimate of 27 analysts surveyed by Bloomberg was for adjusted earnings of $1.39 per share, with forecasts ranging from $1.30 to $1.50.

“Expenses were heavy,” David Konrad, Macquarie Group Ltd.’s head of U.S. bank research said in a research note today, adding that he would probably raise his estimate for “core expenses” to $58.3 billion from an earlier forecast of $57.8 billion for 2014.

JPMorgan’s $7.2 billion in legal and regulatory expenses a year ago caused the bank to report its only quarterly loss since Dimon took over in 2006.

Revenue in this year’s third quarter climbed 5.4 percent from a year ago to $25.2 billion, beating the average estimate of $24.4 billion from 10 analysts. Fixed-income trading revenue rose 2 percent to $3.5 billion, fueled by strength in currencies and emerging markets, beating the $3.2 billion estimate from Macquarie’s Konrad.

Cancer Prognosis

The earnings report was released online hours before the scheduled time.

Last week, Dimon made his first public appearance since undergoing eight weeks of treatment for throat cancer, a condition he disclosed in July. He told reporters today that he never stopped working during his treatment and that he’s building back up to a full schedule. He said his prognosis remains excellent.

Dimon said in the Oct. 10 panel discussion that JPMorgan will probably double its $250 million annual cyber-security budget within five years. The bank disclosed Oct. 2 that hackers had obtained contact information of 76 million households and 7 million small businesses, while adding that account numbers and passwords weren’t compromised.

Equity Trading

Third-quarter profit in the corporate and investment bank, overseen by Daniel Pinto, dropped 34 percent to $1.49 billion as noninterest expenses including compensation rose 21 percent to $6.04 billion. Revenue of $8.79 billion rose 7.3 percent from a year earlier, driven by higher trading revenue.

“If you look at the printed number, it is showing a miss, but all businesses are doing relatively well,” said Guy de Blonay, a London-based fund manager at Jupiter Asset Management Ltd. that owns JPMorgan shares. “For example, the investment bank is doing better.”

Markets revenue, which including fixed-income trading operations, rose 15 percent to $6.1 billion. Equity trading revenue dropped 1 percent to $1.23 billion. Investment banking revenue declined 6 percent to $2.7 billion as lower debt underwriting fees outweighed higher equity underwriting fees and advisory fees.

Citigroup Inc. (C), the third-largest U.S. bank, and Wells Fargo & Co. (WFC), the biggest mortgage lender, also reported results today. Bank of America Corp., Goldman Sachs Group Inc. (GS) and Morgan Stanley will release theirs later this week.

(Source: Bloomberg)