Out of the frying pan

14 January 2014 By Antony Currie Follow @AntonyMCurrie

JPMorgan’s boss may have the biggest legal issues behind him. Stripping those out and other funnies in the quarter, though, exposes a more fundamental issue: core earnings are falling. JPMorgan isn’t alone, but Dimon looks more exposed than most of his rivals.

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JPMorgan Chase on Jan. 14 reported fourth-quarter net income of $5.28 billion on revenue of $24.1 billion. Earnings per share were $1.30. Adjusting for special items, the figure was $1.40, beating the $1.35 consensus estimate of analysts.

The bank recorded several special gains in the quarter. Selling around a third of its stake in Visa added $812 million to net income while selling its One Chase Manhattan Plaza building brought in another $306 million. Releases from loan loss reserves in real estate portfolios and card services added another $775 million to the bottom line. And tax benefits added around $300 million, although the bank did not include this in its special items.

JPMorgan also suffered major hits in the three months to December. Adding to legal reserves, including an amount to cover the Bernie Madoff settlement, cost $1.1 billion after tax. Debit valuation adjustments and funding valuation adjustments dented earnings by $1.2 billion.

The funding valuation adjustment is designed to bring the bank into line with a growing industry trend to incorporate the cost or benefit of unsecured funding with over-the-counter derivatives and structured notes into valuations. These will now be calculated on a present-value basis rather than accruing through the life of the derivatives. It is expected to be a one-off charge and has been recorded in the investment bank’s earnings.

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