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JPMorgan Chase Posts Unexpected Loss, $7.2B in Legal Expenses

Updated from 9:14 a.m. ET with additional detail throughout, comments from conference call.

  • JPMorgan Chase (JPM - Get Report) reports third-quarter loss of $380 million or 17 cents per share.
  • Revenue came in at $23.9 billion.
  • Analysts expected the bank to report an earnings per share of $1.17 on revenues of $23.94 billion, according to Thomson Reuters.
  • Losses include $7.2 billion in legal expenses, including reserves for litigation.

NEW YORK (TheStreet) -- JPMorgan Chase reported an unexpected loss in the third quarter on the back of higher-than-expected legal expenses as the bank faced "escalating demands and charges from multiple government agencies."

This is the first loss the bank has ever reported since Jamie Dimon took over as CEO in 2006, a loss that is all the more painful considering the bank managed to stay profitable throughout the financial crisis. It is also the first time it has missed estimates since December 2011.

Still, shares were trading in the green early Friday. The bank's underlying businesses performed mostly in line with expectations. Investors also appear to be optimistic that the bank is well reserved for future legal losses, with the bank disclosing for the first time that it had $23 billion in reserves for litigation.

The New York-based bank reported net loss for the third quarter of $380 million or 17 cents a share, compared to $6.5 billion or $1.60 a share in the second quarter and $5.7 billion or $1.40 a share during the third quarter or 2012.

Revenue on a managed basis for the third quarter was $23.9 billion, down 8% from the previous quarter and down 8% year-over-year.

Analysts polled by Thomson Reuters expected earnings of $1.17 a share on revenue of $23.94 billion.

The third-quarter results included $7.20 billion in after-tax legal expenses ($1.85 per share after-tax decrease in earnings), including reserves for litigation and regulatory proceedings.

It also included a $1.6 billion pretax benefit ($992 million after tax or 26 cents per share) from reduced reserves in consumer and community banking, in line with its guidance and expectations.

Excluding these items, the bank pointed out that it earned a "core" profit of $5.8 billion or $1.42 per share.

"While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense. We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen them. While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters," JPMorgan Chairman and CEO Jamie Dimon said in a statement.

He added that the bank continues to seek "fair and reasonable" settlement with the government on mortgage-related issues, "one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request or encouragement of the U.S. Government."

JPMorgan entered into three major settlements in the third quarter. These included an agreement to pay $410 million "in penalties and disgorgement to ratepayers," to settle Federal Energy Trading Commission charges of market manipulation, $920 million in fines to settle multiple probes of the 2012 "London Whale" trading fiasco and another $369 million in fines and customer refunds to settle regulatory charges of "illegal credit card practices."

JPMorgan has been negotiating with the Department of Justice, bank regulators and states' attorneys general to settle numerous criminal and civil investigations of its mortgage lending and sales activities. The settlement could end up as high as $11 billion, according to media reports, and the negotiations may have been held back by the ongoing partial shutdown of the federal government.

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