JP Morgan falls to loss on huge litigation bills

 
Tim Wallace
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JP MORGAN made a loss in the last three months after crushing fines and bills to settle legal claims, the investment bank said yesterday.

Legal bills came to $9.2bn (£5.6bn) in its corporate arm, causing the bank to lose $380m in the third quarter of its financial year, down from a profit of $5.7bn in the same period of 2012.

The bank’s legal woes include last week’s agreement to pay $2.6bn to settle government and private suits over its involvement in the Madoff scandal.

Revenues fell eight per cent to $23.1bn in the three-month period. Consumer and community banking revenues tumbled 13 per cent on the year to $11.1bn, in part due to falling mortgage fees.

However, the business unit still saw profits rise 15 per cent to $2.7bn as its provisions for credit losses fell.

Revenues also fell two per cent in corporate and investment banking to $8.2bn. Markets and investor services revenue fell four per cent to $5.3bn and fixed income markets revenues dipped eight per cent to $3.4bn.

Other areas recorded growth – equities revenues jumped 20 per cent to $1.2bn.

The bank’s return on equity fell to minus one per cent in the quarter, from 12 per cent a year earlier.

It cut some costs by reducing headcount by 4,103 to 255,041 staff, and reduced compensation.

The bank’s shares fell by 1.4 per cent on the day.

JP MORGAN’S KEY NUMBERS

■ JP Morgan made a loss of $380m in the third quarter of its financial year.

■ It would have made a profit if not for legal bills and provisions which combined to cost $9.2bn.

■ The bank said its underlying profits, stripping out those legal bills, came to $5.8bn for the quarter.

■ The loss had an impact on pay as the bank cut its costs a little.

■ The average employee at the bank earned $287,200, down from $289,500 a year earlier.

■ It also cut headcount by more than 4,000 and now employs a total of 255,041 staff.

■ Those changes helped bring down overall compensation payments by two per cent to $7.3bn.

■ As a result the bank’s compensation ratio now stands at 27 per cent, down from 32 per cent a year ago.

■ JP Morgan’s return on equity plunged to minus one per cent in the quarter from 12 per cent a year ago.

■ For the year so far its return on equity stands at eight per cent, down from 11 per cent in the same period of 2012.

■ The bank estimates its Basel I tier one common capital ratio at 10.5 per cent, up from 10.4 per cent a year ago. On a Basel III basis it estimates 9.5 per cent.