JPMorgan Reports 53% Earnings Increase as Mortgage Fees Rise

JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, said fourth-quarter profit rose 53 percent, beating analysts’ estimates as mortgage revenue more than doubled and the lender set aside less for future losses.

Net income climbed to $5.69 billion, or $1.39 a share, from $3.73 billion, or 90 cents, a year earlier, the New York-based company said today in a statement. JPMorgan earned $1.35 a share excluding one-time items such as accounting adjustments and costs from a mortgage settlement, compared with the $1.22 estimate for adjusted earnings by 28 analysts surveyed by Bloomberg.

“The firm’s results reflected strong underlying performance across virtually all our businesses for the fourth quarter and the full year, with strong lending and deposit growth,” Chief Executive Officer Jamie Dimon, 56, said in the statement.

JPMorgan capped its third-straight year of record profits with $21.3 billion in net income, even after suffering its biggest trading loss ever. The bank faces regulatory sanctions and investigations by U.S. and international authorities stemming from the loss over a wrong-way bet on credit derivatives. The mistake cost JPMorgan more than $6.2 billion in the first nine months of last year, and the board cut Dimon’s 2012 pay in half as a result.

Photographer: Scott Eells/Bloomberg

Pedestrians pass in front of the JP Morgan Chase & Co. headquarters in New York. Close

Pedestrians pass in front of the JP Morgan Chase & Co. headquarters in New York.

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Photographer: Scott Eells/Bloomberg

Pedestrians pass in front of the JP Morgan Chase & Co. headquarters in New York.

Mortgage Fees

Mortgage fees and related revenue surged to $2.03 billion in the quarter from $723 million a year earlier. Demand for loans rose amid government incentive programs and as the unemployment rate fell to 7.8 percent in the quarter from 8.9 percent in the year-earlier period.

JPMorgan set aside $656 million in provisions against future mortgage loan losses, compared with an average estimate by analysts of about $1.5 billion.

“The earnings beat was primarily driven by a low provision charge,” Richard Staite, an analyst at Atlantic Equities LLP in London, said in a telephone interview.

Revenue increased 10 percent to $23.7 billion from $21.5 billion in the fourth quarter of 2011. Annual revenue was $97 billion, down from $97.2 billion the prior year.

Revenue at the newly combined corporate and investment bank was $7.6 billion, rising 21 percent from $6.3 billion the prior year.

Accounting Adjustment

Trading results, which were hurt in the third quarter as the price of bank debt rose, were similarly affected in the last three months of 2012. The bank booked a $567 million pretax loss from a so-called debt-valuation adjustment in the fourth quarter as the price of the bank’s debt rose, compared with a $211 million loss in the third quarter.

Fixed-income and equity-markets revenue climbed to $4.07 billion from $3.43 billion a year earlier and declined from $4.77 billion in the third quarter, the company said. Investment-banking and trading revenue is estimated to have jumped 44 percent across the industry from the same quarter in 2011, according to Betsy Graseck, a Morgan Stanley analyst in New York.

The investment bank’s fixed-income trading book, which contains the remaining credit derivatives position, generated $3.18 billion in revenue compared with $2.63 billion in the fourth quarter of 2011.

Fewer consumers fell behind on their credit-card payments in the fourth quarter compared with the same period in 2011. Loans at least 30 days overdue, a signal of future write-offs, fell to 2.1 percent from 2.81 percent in the fourth quarter of 2011. Write-offs dropped to 3.5 percent from 4.29 percent the prior year and 3.57 percent in the previous quarter.

Home Loans

Consumer banking, which includes home loans and checking accounts, earned $2.01 billion in the fourth quarter, up 28 percent from $1.57 billion a year earlier. Net interest margin, which measures the profit margin on lending, narrowed to 2.4 percent from 2.7 percent a year earlier.

The Federal Reserve and Office of the Comptroller of the Currency took the first regulatory actions against the bank for the credit-derivatives trading loss on Jan. 14, ordering it to strengthen risk controls and enhance executive pay practices. The board of directors was also told to take into consideration control weaknesses and “adverse risk outcomes” in deciding compensation for Dimon and other top managers.

The U.K.’s Financial Services Authority, which regulates banking activity there, announced its own inquiry into the trading loss this week.

London Traders

Dimon ousted the three London traders who were responsible for the loss, shuffled senior managers and accepted resignations from other executives.

Mortgage litigation stemming from the housing crisis also continues to plague the company. JPMorgan took a one-time pretax charge of $700 million in the fourth quarter to cover the costs associated with a $2 billion settlement of mortgage abuse allegations by the Fed in a deal announced Jan. 7.

Those losses were offset by federal programs that encouraged mortgage lending, increasing the bank’s profit and helping Dimon boost investor confidence.

JPMorgan shares advanced 8.6 percent in the quarter and 32 percent for all of 2012, compared with gains of 3.4 percent and 30 percent, respectively, for the 24-company KBW Bank Index. The stock rose 1 percent to $46.82 at 4:15 p.m. in New York.

The banking industry has been cutting staff and reducing expenses to offset slowing global growth, compressed profit margins on lending and low yields on investments. JPMorgan last week dismissed more than 800 mortgage workers that specialized in foreclosure reviews, a sign the economy is improving as the bank needs fewer people to help troubled borrowers, according to Amy Bonitatibus, a JPMorgan spokeswoman.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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