JPMorgan Chase & Co posted far weaker-than-expected quarterly profit as uncertainty about the US economy weighed on investor trading volumes and consumer borrowing. Results from the first of the major Wall Street banks to post earnings underscore how difficult the first quarter was for the financial sector. JPMorgan's bond trading revenue plunged 21 percent, and mortgage lending revenue fell 84 percent from the same quarter last year.
Most of the bank's big businesses, including commercial lending and credit cards, delivered lower profits. But the bank is not responding by dialing up its risk-taking in commercial lending, and it views falling revenue in its bond trading business as part of a business cycle instead of a symptom of a broad-based and lasting decline in fixed-income trading.
"It's not like selling cereal - it's not like your volumes go up 2 percent every day," Chief Executive Jamie Dimon said to reporters on a conference call. The business will grow over the next decade or two, he added.
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Dimon, who earned plaudits for keeping his bank consistently profitable during the financial crisis, is struggling to figure out how to navigate the current environment.
In his annual letter to shareholders earlier this week, Dimon noted that JPMorgan will have spent more than USD 2 billion more than usual from 2012 through the end of this year on complying with new rules, and devoted more than 1 million work hours to meeting new mortgage rules. The bank's net income dropped 16 percent last year due to massive legal settlements and rising compliance costs.
Friday's results showed how the bank's troubles appear to be extending beyond outsized legal settlements and meeting new rules, and into areas more fundamental to the business, such as loan demand and trading volume.
Overall, net income fell 19 percent to USD 5.27 billion, or USD 1.28 per share, from USD 6.53 billion, or USD 1.59 per share, in the same quarter of 2013, the biggest US bank said on Friday.
Analysts on average had expected earnings of USD 1.40 per share, according to Thomson Reuters I/B/E/S.
Total net revenue fell 8.5 percent to USD 22.99 billion, falling well short of the average estimate of USD 24.53 billion.
JPMorgan shares, which recently topped USD 61 to trade at their highest level in 13 years, fell 3.1 percent to USD 55.63 in afternoon trading.
MORTGAGE LENDING FALLS
One area where the bank is meeting with some success is keeping costs under control, a crucial effort when future revenues may be weak. JPMorgan said non-interest expenses fell 5 percent in the latest quarter to USD 14.6 billion.
Dimon is aiming to hold down overhead - which he defines as non-interest expenses aside from litigation - to below an average of USD 14.75 billion per quarter, or USD 59 billion for the year.
Mortgage banking net income fell to USD 114 million in the quarter, a drop of USD 559 million from the year-earlier period. Production revenue, a measure of lending revenue, fell 84 percent to $161 million, and the bank made USD 17 billion of home loans, a 68 percent decline from a year earlier.
US mortgage lending has cooled after rising rates in the second half of last year have given fewer homeowners reason to refinance their loans.
Wells Fargo & Co, the biggest U.S. home lender, also reported results Friday and said its income from mortgage banking fell 46 percent from a year earlier.
For JPMorgan, rising bond yields in the middle of last year, which resulted from the Federal Reserve's decision to slow down its bond buying program, also weighed on fixed income, currency, and commodity trading revenue, which fell to USD 3.76 billion from USD 4.75 billion in the same quarter last year.
Commercial banking income fell 3 percent to USD 578 million, hurt by declining revenue from making loans. Consumer credit and debit card income fell 1 percent to USD 1.35 billion.
JPMorgan, the largest U.S. bank by assets, said total assets at the end of March stood at USD 2.48 trillion, up from USD 2.42 trillion at the end of December.
The firm's supplementary leverage ratio, a measure of a bank's capital compared with its assets, stood at 5.1 percent at the end of the quarter.
Leverage ratios took on added importance on Tuesday when the Federal Reserve approved new rules setting minimum levels that could force the eight biggest US banks to boost their capital by a total of USD 68 billion.
The rule sets a higher minimum of 6 percent for the company's insured bank subsidiary.
Before the rule was approved in its latest form, JPMorgan had said it was on track to raise its ratio from 4.6 percent at the end of December to the 5 percent minimum for its holding company by the end of this year.
LITIGATION EXPENSES "IMMATERIAL"
JPMorgan said its litigation expenses were immaterial in the latest quarter, under its "other corporate" accounting line.
Litigation expenses totaled USD 347 million in the year-earlier quarter and USD 847 million in the fourth-quarter.
In the first quarter two years ago, litigation costs totaled USD 2.5 billion as the bank built up reserves in anticipation of big legal settlements that it ultimately reached in 2013. JPMorgan paid more than USD 20 billion last year to resolve legal claims stemming from a wide range of problems, including its London Whale derivatives loss and its marketing of bad mortgage securities before the financial crisis.
JPMorgan's shares - which have nearly doubled in price since the bank was rocked in 2012 by its London Whale derivatives trading scandal and USD 6.2 billion loss - were trading at a multiple of 9.56 times estimated forward earnings on Thursday.
That compares with 9.93 times for Goldman Sachs Group Inc and 11.38 times for Morgan Stanley , both of which report next week.
