Bank earnings: JPMorgan hit by legal costs, trading drop while Wells Fargo sees steady results

Markets Associated Press

JPMorgan Chase & Co. reported a 7 percent decline in fourth-quarter earnings Wednesday, hit by legal costs and lower trading revenue.

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Its results also fell short of Wall Street forecasts and sent the company's stock down 3.5 percent for the day, more than the downturn in the broader stock market.

Wells Fargo & Co. also reported its quarterly results. Its net income rose slightly and beat Wall Street expectations.

JPMorgan, the biggest bank in the U.S. by assets, has been hit by legal costs over the past year as it settles lawsuits or other issues with state and federal regulators over its role in the housing bubble and subsequent financial crisis. In the latest quarter, it took a charge of $990 million for legal expenses, more than analysts expected.

CEO Jamie Dimon said investors should expect more legal expenses this year as the bank continues to resolve its problems.

Dimon said the bank has to deal with "five to six regulators" for every aspect of its legal issues. Dimon also acknowledged that the bank, on occasion, has made mistakes.

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JPMorgan earned $4.93 billion, or $1.19 a share, for the three-month period ending in December, compared with $5.28 billion, or $1.30 a share, a year earlier. Analysts were looking for JPMorgan to earn $1.31 a share.

JPMorgan's miss hit its shares hard. The bank's stock fell $2.03 to $56.81.

Total revenue at the bank fell 3 percent to $22.5 billion.

JPMorgan's investment banking division was hit by the sale of its commodities trading division and a slowdown in bond trading, one of the bank's bigger businesses. Fixed-income revenue fell 23 percent from the prior year to $2.5 billion.

"Those trading numbers came down harder than what analysts thought they would, so that's largely why investors had an issue with their results," said Fred Cannon, director of research for Keefe, Bruyette & Woods.

But there were signs that consumers were more willing to take on debt and spend more. Credit card balances rose 3 percent to $131 billion, while merchant processing volume, the amount of money spent on the bank's credit and debit cards, climbed 13 percent from a year earlier. The bank processed 10.3 billion transactions in the quarter, up 7 percent from a year earlier. Auto loan originations rose 8 percent from the prior year.

Despite JPMorgan's legal troubles, 2014 was a very profitable year. The company earned $21.8 billion, an increase of 21 percent. The gain came despite revenues remaining essentially flat.

Wells Fargo's results were better than JPMorgan's but the company still had issues that gave investors pause.

The San Francisco-based bank earned $5.38 billion in the fourth quarter, up from $5.37 billion a year earlier. That was after taking out dividends for preferred stock. On a per-share basis, adjusted earnings worked out to $1.02, matching Wall Street's expectations. Revenue rose 4 percent to $21.44 billion in the three months ending in December, which narrowly topped forecasts.

In a statement accompanying the results, John Shrewsberry, the bank's chief financial officer, said making more loans helped boost revenue.

Total loans rose 5 percent to $862.55 billion, but the company's net interest margin, which is how much a bank earns on its assets over the cost of doing business, fell slightly in the quarter. Net interest margin is closely followed by investors.

For all of 2014, Wells Fargo's adjusted earnings climbed 4 percent to $21.82 billion, while revenue crept up 1 percent to $84.35 billion.

Shares of Wells Fargo fell 60 cents, or 1.2 percent, to $51.25.