JPMorgan Chase & Co. (JPM:US) tumbled as much as 5 percent, the most in 17 months, after reporting first-quarter profit that fell short of analysts’ estimates on lower revenue from fixed-income trading and mortgages.
JPMorgan, the biggest U.S. bank, declined (JPM:US) 3.2 percent to $55.59 at 10:32 a.m., after dropping to $54.55 earlier today. Excluding one-time items, profit at the New York-based company was $1.35 a share, David Konrad of Macquarie Group Ltd. said today in a note, falling short of the $1.46 average estimate of 10 analysts surveyed by Bloomberg.
Earnings slumped in every major division at JPMorgan, the first of the top U.S. banks to post results for the period, amid a 42 percent drop in mortgage revenue and a 21 percent slide in fixed-income trading. The results fell short of analysts’ estimates by the most since Chief Executive Officer Jamie Dimon, 58, took over at the start of 2006, data (JPM:US) compiled by Bloomberg show.
“This was not the usual upside surprise” for JPMorgan, said Jeff Morris, head of U.S. equities at Standard Life Investments, which manages $305 billion in assets. “Mortgage was under pressure and, despite the company warning about trading revenues in February, the 17 percent year-over-year drop in markets revenues feels softer than many were expecting,” Morris said in an e-mail.
Net income dropped to $5.27 billion, or $1.28 a share, from $6.53 billion, or $1.59, a year earlier, JPMorgan said in a statement. Total revenue fell 7.7 percent to $23.9 billion, as noninterest expenses declined 5.1 percent to $14.6 billion.
Earnings at the corporate and investment bank, run by Daniel Pinto, dropped 24 percent to $1.98 billion, as revenue declined 15 percent from a year earlier to $8.61 billion. Fixed-income trading revenue fell to $3.8 billion on “weaker performance across most products and lower levels of client activity,” the bank said.
Pinto said this week he was overhauling the division’s reporting lines after his former co-head, Mike Cavanagh, left to join Carlyle Group LP. Pinto named Carlos Hernandez co-head of global banking with Jeff Urwin, John Horner head of investor services and Joyce Chang global head of research.
The 21 percent drop in fixed-income trading revenue surpassed estimates of a 15 percent decline from Moshe Orenbuch, an analyst at Credit Suisse Group AG, and 17 percent from Wells Fargo & Co.’s Matt Burnell.
“Core business lines were a bit weaker than expected across the board,” Keith Horowitz, a Citigroup Inc. analyst, wrote in a note to clients, calling the report a “tough start to 2014.” Profit was lower than estimated in six of the eight units he tracked, Horowitz said.
Trading results haven’t improved so far this month, Chief Financial Officer Marianne Lake said today on a conference call with reporters.
“We can’t predict trading like we can’t predict interest rates,” Lake said. “We’re not going to call a position on the market but we do hope that activity levels will pick back up.”
Net income from consumer and community banking, run by Gordon Smith, fell 25 percent to $1.94 billion as provisions for credit losses surged 49 percent to $816 million. Revenue was $10.5 billion, down 10 percent from a year earlier.
Mortgage revenue dropped to $1.57 billion in the quarter from $2.72 billion a year earlier. Home-loan originations were $17 billion, down 68 percent from the prior year as higher interest rates curtailed refinancings.
JPMorgan said profit in asset management, run by Mary Erdoes, declined 9 percent to $441 million, as costs rose 11 percent to $2.1 billion on “headcount-related expenses.” Those costs were from added compliance, audit and legal personnel, Lake said on the call.
Assets under management climbed 11 percent to $1.6 trillion amid greater inflows and rising equity markets. Commercial banking, a division run by Doug Petno, posted a 3 percent profit decline to $578 million.
Dimon agreed to more than $20 billion in legal settlements last year tied to lapses involving mortgage-bond sales and trading losses in 2013. Resolving the disputes was the “most painful, difficult and nerve-racking experience that I have ever dealt with professionally,” Dimon said this week in his annual letter to investors.
The bank said today that litigation reserves would continue to be “lumpy” in coming quarters.
JPMorgan could eventually earn $27 billion a year, or about $6.8 billion a quarter, as legal costs subside and higher interest rates boost margins, the bank said during its Feb. 25 investor meeting. The company said the quarterly dividend will rise to 40 cents a share from 38 cents, and it authorized a $6.5 billion stock buyback after the Fed approved the lender’s capital plan.
Wells Fargo & Co., the most profitable bank in 2013, posted a 14 percent increase in earnings for the first quarter as few customers missed loan payments.
Citigroup reports earnings on Monday, followed by Bank of America Corp. April 16. Goldman Sachs Group Inc. and Morgan Stanley announce results on April 17.
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