By David Henry
Oct 11 Jamie Dimon, JPMorgan Chase & Co Inc's
hard-charging chief executive, looked a bit more
vulnerable on Friday after the bank took a $7.2 billion hit from
litigation expenses and posted its first quarterly loss since
The loss is a blow to Dimon, who has long used the bank's
steady profit as a shield to ward off critics of its mounting
regulatory and legal issues. The bank for the first time said it
has stockpiled reserves of $23 billion for expected settlements
and other legal expenses.
In unusually humble language for a CEO once lionized on Wall
Street and in Washington, Dimon said that the first loss under
his leadership was "very painful for me personally."
JPMorgan reported a loss of $380 million, or 17 cents per
share, for the third quarter. A year earlier it posted a profit
of $5.71 billion, or $1.40 a share.
Dimon earned widespread praise as a risk manager for
avoiding most of the mortgage-related losses that hobbled rivals
during the financial crisis. But he was less adept at
anticipating legal expenses.
"His halo is a little off-kilter at this point," said Jordan
Posner, a senior portfolio manager at Matrix Asset Advisors of
New York, which owns over 600,000 JPMorgan shares.
The third-quarter legal hit includes money set aside for
future settlements. Dimon cautioned that these expenses will
likely be elevated for the next year or two.
"I wish we could reduce the uncertainty for investors, but
we can't," he told reporters in a conference call.
Later, in a conference call with investors, he said it is
"very hard to fight with your regulators and the federal
Even putting litigation aside, revenue fell and other
results were lukewarm. Weak fixed-income markets squeezed
revenue at JPMorgan's investment bank, off 2 percent from a year
ago and down 17 percent from the second quarter, reflecting the
tough environment for bond-trading at all Wall Street banks.
Equity markets revenue gained 20 percent. Rivals such as
Goldman Sachs Group Inc and Morgan Stanley, both
due to report earnings next week, tend to be more heavily
weighted in fixed income.
"HIT FROM ALL SIDES"
JPMorgan executives have long been quick to point out the
bank's profitability when investors bring up its troubles. The
bank posted record profits last year, even as bad derivatives
bets known as the "London whale" trades resulted in $6 billion
But the third-quarter loss underscores how legal problems
threaten the profitability of a bank that has long boasted of a
"fortress" balance sheet.
Dimon "has become a little bit less critical, a little bit
less vocal, a little bit more humble," said Shannon Stemm, a
stock analyst at brokerage Edward Jones. "He used to run the
bank that really stood out for weathering the crisis better than
The bank's legal issues are legion. JPMorgan faces more than
a dozen probes globally, including whether it fraudulently sold
U.S. mortgage securities and whether it improperly fixed certain
benchmark borrowing rates. The Securities and Exchange
Commission is investigating whether the bank violated
anti-bribery laws in hiring sons and daughters of executives of
Chinese state-owned companies.
The Justice Department is looking into whether bank
employees obstructed justice in a power market manipulation
probe by the Federal Energy Regulatory Commission that the bank
settled in July for $410 million. JPMorgan neither admitted nor
Federal prosecutors in August brought criminal charges
against two former JPMorgan traders, accusing the pair of
deliberately understating losses in the "Whale" scandal. The SEC
received an admission of wrongdoing from the bank in a parallel
civil action, a rare step for the government agency.
In September, JPMorgan tried to reach a settlement with the
U.S. Department of Justice and other federal and state agencies
to resolve claims against the bank over its mortgage businesses.
An $11 billion settlement was discussed, according to sources
familiar with the matter. Dimon went to Washington to meet with
U.S. Attorney General Eric Holder on Sept. 25, but no deal has
Much of those claims relate to mortgage bank Washington
Mutual and investment bank Bear Stearns, two failing firms that
JPMorgan took over in 2008.
PAYOUT SEEN SAFE
Despite the clouds, the bank's shares are up 20 percent this
year and its CEO still has many fans. JPMorgan shares closed
down a penny at $52.51 on Friday.
"While headlines today suggest the government is looking to
slap some fines on them for business units that underwrote or
securitized various products, JPMorgan is still in far better
shape than any peers," said Tom Jalics, senior investment
analyst at Key Private Bank. "It's not even close."
Dimon, 57, became CEO on Dec. 31, 2005, and added the post
of chairman a year later.
JPMorgan's chief financial officer, Marianne Lake, said
legal expenses would not affect stock repurchase plans and that
the bank "has every intention to pay our dividends."
Even beyond the litigation expenses, the third-quarter
results were less than spectacular, with revenue declining 8
percent to $23.9 billion - about in line with forecasts - as fee
income and lending income both fell.
JPMorgan and other U.S. banks have struggled to boost
profits as loan volume has declined, interest margins have been
under pressure, and fee income from debit cards and mortgages
has been squeezed.
Also on Friday, Wells Fargo & Co, the largest U.S.
mortgage lender, reported a 13 percent rise in third-quarter
profit but saw a sharp drop in mortgage banking income as a boom
in refinancings began to fade.
Mortgage banking income also declined at JPMorgan, with net
revenue falling 45 percent to $2.02 billion.