JPMorgan Chase & Co (JPM.N) reported lower-than-estimated third-quarter profit on Tuesday as unexpected legal expenses of $1 billion caught analysts off guard and offset strength in its capital markets and lending businesses.
The bulk of the costs came from setting aside money to resolve government probes into alleged rigging of foreign-exchange rates, Chief Financial Officer Marianne Lake said.
JPMorgan, the biggest U.S. bank, also reported higher-than-expected operating costs, with compensation, technology and marketing all up. Lake cited strong business growth, and added that JPMorgan may breach its annual expense target of $58 billion this year.
"We continue to be focused and diligent on managing expenses," she said on a conference call with analysts.
JPMorgan and other big banks have been trying to bolster profits through cost-cutting for years, as low interest rates and new regulations have crimped revenue growth. But the efforts have been overshadowed by multibillion-dollar fines and higher costs for technology and compliance.
A year ago, JPMorgan reported its first loss since 2004 due to $7.2 billion in litigation expenses. Overall, the bank agreed to pay nearly $20 billion in 2013 to settle various legal issues. Yet other matters, like the foreign-exchange probes, remain unresolved.
"The ongoing high level of litigation expense after last year's ... mega settlement is a bit disturbing," said Chris Kotowski, an analyst with Oppenheimer & Co. "At some point, it ceases to become a 'special' item."
Overall, JPMorgan reported earnings of $5.6 billion, or $1.36 per share, compared with a loss of $380 million a year earlier. Analysts expected earnings of $1.38 per share, on average, according to Thomson Reuters I/B/E/S.
Revenue rose 5 percent to $24.2 billion from $23.1 billion in the third quarter of 2013.
'MODEL OF STABILITY'
JPMorgan was hit with a technical glitch on Tuesday as its earnings release appeared hours ahead of schedule due to a "human error" at a vendor that handles its investor relations documents.
The earnings report was the first since Chief Executive Officer Jamie Dimon, 58, underwent radiation and chemotherapy for throat cancer. The illness has raised questions about who might succeed him if he steps down.
Dimon said his prognosis remained "excellent," allowing him to maintain a busier schedule, but added that he was still monitoring his health with regular doctor visits.
Dimon told reporters on a conference call that the bank was seeing "a broad-based recovery" in the United States, both in consumer and corporate markets.
A recent uptick in volatility helped JPMorgan's trading business, but Dimon said products that deliver more stable earnings in the retail bank were not affected by brief market swings.
Revenue from fixed-income, currency and commodity trading rose 2.1 percent to $3.51 billion in the latest quarter compared with a year earlier.
Total investment banking revenue rose 2 percent to $1.54 billion, driven by higher advisory fees. But net income from mortgage banking fell 38 percent $439 million.
"The headline numbers have come out slightly below expectations, but the model of stability is there, and that's ultimately what you want from a bank," said Simon Maughan, head of research at financial analysis firm OTAS Technologies in London.
JPMorgan's shares dipped 0.3 percent at $58 in afternoon trading.
(Reporting by David Henry in New York and Tanyas Agrawal in Bangalore; Additional reporting by Steve Slater in London and Lauren Tara LaCapra in New York; Writing by Lauren Tara LaCapra; Editing by Ted Kerr and Jeffrey Benkoe)