How risky are JP Morgan’s litigation claims for 2014? Analysts weigh in

While the bank reported a decent fourth quarter, analysts are beginning to question whether or not the financial giant can expect positive results for 2014.

JPMorgan Chase may be the nation’s largest bank, but after the organization’s final earnings call for 2013 was released, projections for the upcoming year aren’t so big. While the bank reported a decent fourth quarter, analysts are beginning to question whether or not the financial giant can expect positive results for 2014. 

Q4 earnings reached $5.3 billion, down from $5.7 billion in Q4 2012. According to The Streets, JPMorgan's results for the most recent quarter included $1.1 billion in after-tax litigation charges, without which fourth-quarter EPS would have come in at $1.40, and the company's return on average tangible common equity would have been 15%, matching its year-earlier performance.

The drop in earnings for 2013 can be accredited to the bank losing a net of $387 million in Q3 from provisions in litigation reserves. This sets the company up to absorb the $17.5 billion in residential mortgage-backed securities settlements it entered into during the fourth quarter with government authorities and investors, as well as the bulk of its $2.6 billion in settlements with the Department of Justice and regulators for its role in the Bernie Madoff Ponzi scheme, according to The Street’s report. The Madoff settlements still resulted in a reduction in fourth-quarter after-tax earnings of $850 million.

For the upcoming year, without including legal expenses, analysts predict Morgan Chase’s operating expenses to decline to $59 billion in 2014 from $60 billion in 2013. While $1 billion doesn’t seem detrimental to the bank’s hefty revenue stream overall, the negative trend that the organization is beginning to experience isn’t good news for the future, especially as the economy is on the uptick and other financial organizations are flourishing.

On the legal side, JPMorgan still faces a number of lawsuits for investors, as well as a continuing investigation of the LIBOR rate-rigging scandal by U.S. regulators and multiple investigations of alleged rigging of foreign exchange trading by global banks. Leaving aside the litigation risk, JPMorgan expects its mortgage production unit to continue posting pre-tax losses, at least during the first quarter.

One factor of their business model that is stronger than ever over the past two years is JP Morgan’s stock. The stock continues to be one of the least expensive of all the U.S. banks on a forward price to earnings basis.


For more news on litigation risk in the financial industry, check out these related reports:

IP: Trademark by analogy problematic for spendology

Johnnie Cochran’s firm wants to represent whistleblowers

NACD releases framework to define supplemental executive compensation

JPMorgan and Deutsche Bank join ban on multiparty chat rooms


Contributing Author

Stefanie Mosca

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