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Fitch: JPMorgan Reports Solid 3Q14 Results, But Provisions a Headwind 

October 14, 2014

(The following statement was released by the rating agency)

CHICAGO, October 14 (Fitch) JPMorgan Chase & Co. (JPM) reported a 5.8% decline in pre-tax earnings in 3Q'14, adjusting for legal expenses, as growth in net revenues and some progress on operating expense efficiencies was not enough to offset a $1.3 billion increase in provision expense. Still, investment banking and mortgage results exceeded Fitch's expectations, and card, commercial banking, and asset management all remained solid contributors. Core loan growth was 7% and the bank's return on tangible common equity was 13%, which is below the long-term target of 15%-16%. Legal expenses in the quarter were approximately $1.1 billion, with $600 million recorded in the Corporate and Investment Bank (CIB) segment, based on Fitch estimates, and the remainder being recognized in the corporate segment. A portion of the legal expense was associated with estimated foreign exchange settlement losses, which are not deductible for tax purposes. Results for CIB were down 34% from 3Q'13, or 40% adjusting for FVA and DVA. The decline was driven by litigation expenses, a 16% drop in debt underwriting fees, and a 58% decline in lending revenue, due largely to mark-to-market losses on securities received for loan restructurings. Markets revenue did better than Fitch expected; up 2.4% adjusting for credit and other adjustments, given strength in currencies and emerging markets. Investment banking fees were up 2% as growth in advisory and equity underwriting offset weaker debt issuance. JPM is cautiously optimistic about CIB revenues for 4Q'14, although markets revenue will decline about 8% year over year, or $300 million, given the sale of certain businesses, including physical commodities. CIB reported average VaR of $35 million for the quarter, which was down from $45 million in 3Q'13. Fitch expects segment VaR to rise with increased market volatility.

Read more: Reuters

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