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JPMorgan Settlement Looms Over Weak Bank Earnings

As it currently stands, JPMorgan's recent earnings indicate its profits are reliant on credit expense reductions such as loan loss reserve releases and on volatile investment banking and trading businesses.

After a settlement is disclosed to investors, will JPMorgan have the earnings power to regain its top standing in the banking sector?

Earlier in October, JPMorgan reported a third-quarter loss of $400 million, or 17 cents a share, on revenue of $23.9 billion. That loss was the first under CEO Dimon and was attributable to $9.15 billion in pretax expense and $7.2 billion in after-tax expense related to a rising provision for the bank's legal expense.

The bank said in a presentation appended to its third-quarter earnings that since 2010 it has added $28 billion to its legal reserves, offset by a $8 billion reduction attributable to settlements and legal judgments. Overall, reserves for litigation have cost the bank approximately $23 billion in net income over that time span.

On a conference call, JPMorgan said the firm likely wouldn't be doing much share buyback activity for the rest of 2013. Earlier in 2013, the company announced a $6 billion share buyback authorization.

While legal issues are depressing JPMorgan's current earnings, they could eventually become a drag across the banking industry.

JPMorgan spokesperson Mark A. Kornblau declined to comment.

-- Written by Antoine Gara in New York.

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