“BULGE” bracket US investment bank JPMorgan Chase unveiled its first quarterly loss under chief executive Jamie Dimon yesterday as a web of legal and regulatory probes cost it $7.2 billion (£4.5bn).
The Wall Street legend managed to avoid losses during the financial crisis, but banking analysts said he failed to anticipate legal expenses tied to banks that he bought during the storm.
JPMorgan posted a loss of $380 million for the third quarter, its first loss since the second quarter of 2004. A year earlier it reported a profit of $5.7bn.
The legal expenses include money set aside for future settlements, and Dimon cautioned yesterday that they will be high for up to the next two years.
He said the litigation issues were “painful”, adding: “I wish we could reduce the uncertainty for investors, but we can’t”. Dimon also said that it was “very hard to fight with your regulators and the federal government”.
The bank revealed it has set aside $23bn to cover settlements, fines and other legal expenses.
JPMorgan posted record profits last year, even as bad derivatives bets known as the “London whale” trades resulted in $6bn of losses.
The bank faces a dozen regulatory probes globally, including possibly fraudulent sales of mortgage securities and the bank’s role in setting certain benchmark borrowing rates.
Mortgage banking income also declined at JPMorgan in Q3, with net revenue falling 45 per cent to $2.02bn.
Some of the legal claims relate to mortgage bank Washington Mutual and investment bank Bear Stearns, two failing firms that JPMorgan took over in 2008. Regulators pressed JPMorgan to acquire both companies, a fact that Dimon alluded to yesterday.
He said that the bank sought a fair settlement with the government on mortgage related issues – “one that recognises the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request or encouragement of the US government”.