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Chase profit falls after legal settlements

By Hugh Son
Bloomberg News

NEW YORK: JPMorgan Chase & Co.’s quarterly profit fell 7.3 percent on $2.6 billion of settlements tied to money manager Bernard Madoff’s criminal Ponzi scheme as rising legal costs ended the bank’s three-year streak of record annual earnings.

Fourth-quarter net income declined to $5.28 billion, or $1.30 a share, from $5.69 billion, or $1.39, a year earlier, according to New York-based JPMorgan Chase, the biggest U.S. bank. Results excluding the Madoff settlement and other one-time items were $1.40 a share. Twenty-two analysts surveyed by Bloomberg estimated $1.37 on average.

Chief Executive Officer Jamie Dimon, 57, is whittling down the firm’s list of legal woes that include allegations it misled buyers of mortgage bonds, rigged markets and turned a blind eye to suspicious activity by customers. The Madoff agreement, which the bank said last week reduced fourth-quarter profit by about $850 million, capped a year in which JPMorgan spent more than $23 billion on legal settlements.

“All things considered, it wasn’t a bad quarter,” said Pri de Silva, senior banking analyst at CreditSights Inc. in New York. “They had something close to a kitchen-sink quarter getting some legal issues done.” Chase has Akron operations.

The stock climbed 33 percent last year, compared with the 35 percent gain of the 24- company KBW Bank Index, the benchmark’s best annual performance since 1997.

Revenue dropped 1.1 percent to $24.1 billion while expenses declined 3.1 percent to $15.6 billion. Full-year profit fell 16 percent to $17.9 billion.

Earnings at the corporate and investment bank tumbled 57 percent to $858 million, driven by a $1.5 billion charge from changing the valuation of what are called over-the-counter derivatives to incorporate funding costs.

So-called funding valuation adjustments, or FVA, estimate a present value of those funding costs rather than spreading them over the life of the derivative contract.

Revenue at the unit fell 21 percent from a year earlier to $6.02 billion.

Net income from consumer and community banking climbed 19 percent to $2.37 billion as provisions for credit losses fell and expenses declined. Revenue was $11.3 billion, down 8 percent from a year earlier.

Mortgage fees and related income dropped 46 percent to $1.09 billion in the quarter, from $2.04 billion a year earlier. Home-loan originations were $23.3 billion, down 54 percent.

Chase avoided prosecution in the Madoff case by acknowledging that it ignored red flags for about 15 years that Madoff used his account to fund his fraud, Manhattan U.S. Attorney Preet Bharara said. Madoff is serving a 150-year federal prison sentence.

Dimon is motivated to settle remaining cases, even if doing so means paying a premium over fighting claims in court, he said last month. Battling regulators and private claimants would expose the firm to being “demeaned in the press nonstop,” he said.

“So you may have paid a premium to settle, we thought it was a far better thing to do,” Dimon said at a Dec. 11 conference. “It’s very hard to go to court in some of these matters if you’re a bank.”

JPMorgan eliminated 3,845 jobs during the quarter, bringing the total to 251,196, according to a financial supplement on the company’s website.


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