JPMorgan Chase & Co. (JPM) Earnings Preview: Q4 Profits Weighed Down By Litigation Costs

JPMorgan Chase & Co. (NYSE:JPM), the nation’s biggest bank by assets, is expected to report a 6.6 percent decrease in earnings per share in the fourth quarter of last year as a result of tens of billions of dollars of legal woes.

The New York-based bank will report fourth-quarter earnings on Tuesday before markets open. Analysts, polled by Thomson Reuters Eikon expect JPMorgan’s net income to drop 5.45 percent to $5.03 billion compared to the same quarter last year, while earnings per share are expected to fall from $1.39 to $1.30.

Revenue is projected to dip slightly -- by 2.2 percent -- to $23.84 billion from $24.38 billion in the fourth quarter of 2012. Excluding one-time items, analysts expect earnings per share of $1.29 compared to $1.39 in the fourth quarter of 2012.

The bank's fourth-quarter results are expected to reflect charges against earnings for fines and settlements. In November, the bank agreed to pay a $13 billion settlement, including $9 billion in cash to pay a civil monetary penalty to the federal government and make compensatory payments, in addition to $4 billion in borrower relief. The bank has been working with the RMBS Working Group of the Financial Fraud Enforcement Task Force, an agency created specifically to make the country’s biggest financial institutions pay for improper practices that fueled the financial crisis of 2008. This is the biggest settlement amount between the government and any company in history.

The bank will also have to cough up $2.6 billion to settle all charges leveled against it by federal authorities for allegedly turning a blind eye to Bernard Madoff as he used his account with the bank to carry on suspicious activities for about two decades. While JPMorgan’s third quarter results already took a hit for setting aside $9.3 billion in legal reserves, the larger-than-expected Madoff settlement will require the bank to add another $400 million in reserves for the fourth quarter, a small price to pay for a clean slate.

“With all of these settlements, we believe JPMorgan will move off of the front page of newspapers and management can refocus on business opportunities,” according to a research note from UBS.

Other than one-time legal fees, JPMorgan didn’t do too badly in the last quarter of 2013, with a number of recommending factors. And in reality, the bank may just beat analysts’ expectations for a slight dip in net income and earnings per share, as it had topped Wall Street consensus estimate for the last 16 quarters.

“Credit quality should remain a key positive, as net charge-offs and nonperforming assets are expected to decline 3 percent and 10 percent last quarter, respectively,” Raymond James analysts wrote in a fourth-quarter preview. “We have modeled a slight increase in last quarter net interest income on a stable net interest margin and modest loan growth, and we expect core noninterest income to increase last quarter, too.”

Full-year results were not stellar. JPMorgan booked a 1.1 percent decrease in revenue to $98.78 billion, a 14.06 percent decrease in net income at $17.08 billion, and a 16.8 percent drop in fully reported earnings-per-share. Last year all major U.S. banks had to deal with claims that they broke laws or cheated investors during the financial crisis that began in 2008. JPMorgan in particular announced more than $23 billion in settlements of government and private disputes over the past 12 months.