Monday, June 18, 2018
Business

JPMorgan Chase's quarterly profit falls 23 percent to $3.7 billion

NEW YORK — The economy may be healing, but banks are suffering from a housing hangover.

JPMorgan Chase spent $3.2 billion last year to fight lawsuits, almost all of them over poorly written mortgages. That was down from $5.7 billion in 2010, but it made clear that housing still haunts the bank, five years after the bubble burst.

The bank said Friday that it set aside $528 million in the last three months of 2011 to fight lawsuits. It also spent $925 million in the fourth quarter to carry out foreclosures and handle mortgage defaults.

"There's still a huge drag," CEO Jamie Dimon said. "I mean, you're talking about several billion dollars a year in mortgage alone."

The expenses took a bite out of JPMorgan's quarterly profit, which fell 23 percent from a year earlier, to $3.7 billion, and missed Wall Street expectations. Stocks across the banking industry declined as a result. It was the first time in four years that JPMorgan's quarterly earnings fell short of expectations.

For the full year, JPMorgan, the nation's largest bank, posted a record profit of $19 billion, up from $17.4 billion in 2010.

JPMorgan also took a hit because of choppy financial markets. It collected $1.1 billion in investment banking fees, down 39 percent from the year before. Its fees for underwriting debt fell 40 percent, and 65 percent for underwriting stock.

Stock market traders take their cue from the results of large banks like JPMorgan, which has 50 million customers. The results demonstrated that it remains unclear how long the mortgage problem will be a drag on the industry.

During the housing bubble last decade, the banks gave out mortgage loans without checking for documents that proved the borrowers had jobs, or could even pay their monthly bills.

The boom in so-called subprime lending was one of the causes of the financial crisis that erupted in the fall of 2008.

JPMorgan and other banks are being forced to buy back many of the soured loans that they sold to Fannie Mae and Freddie Mac, the government lenders, during the boom. In the last quarter, JPMorgan lost $390 million from the buybacks.

The bank's higher litigation expense does not bode well for Bank of America, which has been damaged far more than JPMorgan from lawsuits related to mortgages. Last year, Bank of America agreed to pay close to $13 billion to settle mortgage issues.

JPMorgan was the first major U.S. bank to report earnings. Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley all report next week.

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