JPMorgan Discloses $700 Million Earnings Hit

NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM) said in an 8-K filing with the Securities and Exchange Commission it will take a $700 million hit to fourth quarter earnings as a result of the cash portion of a Monday settlement between ten of the nation's largest housing lenders, the Federal Reserve and the Office of Controller of Currency (OCC).

In total, the Monday settlement will cost the banks $8.5 billion as a result of improper foreclosure practices such as robo-signing between 2009 and 2010.

While the Fed and OCC settlement creates varying financial costs for the banks involved, it also precipitated a variance in how the settlement was disclosed to shareholders.

Notably, JPMorgan's Wednesday filing is the first on-the-record confirmation to shareholders of its foreclosure review costs and comes roughly 48 hours after its competitors Bank of America ( BAC), Wells Fargo ( WFC) and Citigroup ( C) disclosed in press statements the fourth quarter financial hit of the settlement.

Under Monday's settlement, JPMorgan said in its filing it will make a cash payment of $753 million for distribution to borrowers. The bank, which is the largest in the U.S. by total assets, will commit a further $1.2 billion to foreclosure prevention action, according to the settlement. As a result, JPMorgan will take a $700 million pre-tax hit to fourth quarter earnings due on Tuesday.

On Monday, JPMorgan spokesperson Amy Bonitatibus, noted that the bank would disclose the costs of the foreclosure settlement - called the Independent Foreclosure Review - in an 8-K filing, but couldn't confirm its timing.

"We worked very hard over the last eighteen months fulfilling our obligations under the Independent Foreclosure Review and are pleased to have it now behind us," Bonitatibus added in a statement emailed on Monday.

In a follow up Wednesday phone conversation, Bonitatibus declined to comment when asked why the bank's disclosure of IFR settlement costs to investors came days after competitors like Bank of America and Wells Fargo.

A Bloomberg news report on Monday noted JPMorgan's charge would be $700 million, citing unnamed sources.

Wednesday's filing also noted James E. Staley, the former chair of its Corporate & Investment Bank, would be leaving to join hedge fund BlueMountain Capital Management.

In total, JPMorgan will incur the second largest charge of the ten lenders named in the Fed and OCC settlement, however its earnings hit is far smaller than Bank of America, which disclosed over $5 billion of fourth quarter earnings charges on Monday.

Bank of America said that the settlement and a $10 billion deal cut with Fannie Mae on faulty mortgage securities Monday will create two separate charges of $2.5 billion and $2.7 billion, which will eliminate most of the bank's expected fourth quarter profit.

In late Monday morning press releases, Citigroup and US Bancorp ( USB) said the foreclosure review will shave off $305 million and $80 million in fourth quarter earnings, respectively, as a result of the cash component of the settlement.

Citigroup will contribute a further $500 million and US Bancorp $128 million to mortgage assistance and loan modifications as part of the non-cash component of the settlement, they added in Monday morning press releases listed on their websites.

After the market close on Monday, Wells Fargo quantified the costs of the settlement to investors.

Wells Fargo said it will pay $766 million for the cash portion of the settlement, in a move that will create a $644 million charge to the company's fourth quarter earnings due on Friday. Wells Fargo added in the statement sent after the market close it will also commit a further $1.2 billion to foreclosure prevention actions, which the lender said has already been provisioned for.

"We are pleased that the regulators and servicers came together to reach this settlement, which will bring resolution to more borrowers in an expedited manner," Mike Heid, president of Wells Fargo Home Mortgage, said in an e-mailed statement.

Metlife ( MET) said in an emailed statement sent to TheStreet that it will take a $37 million pre-tax hit to earnings it characterized as "not material to the company."

"MetLife has been fully cooperating with the OCC look back process and has agreed to join the settlement with the major banks. MetLife's portion of the $8.5 billion settlement is $37 million pre-tax and is not material to the company," John Calagna, a MetLife spokesperson, said in an e-mailed statement.

PNC Financial ( PNC) and SunTrust ( PNC), the other publicly traded U.S. lenders named in the settlement did not disclose their costs.

"We have not announced any associated charge against earnings at this time," Marcey Zwiebel, a spokesperson for PNC Financial, said in an email. "Our payment will be proportional to our customers' representation among the 3.8 million eligible borrowers, which is approximately 2 percent," the email added.

"We are pleased to have reached this agreement, and believe it represents an important step forward in resolving legacy mortgage issues," Michael McCoy, a SunTrust spokesperson, said in an e-mailed statement.

As part of the IFR settlement, the Fed and OCC said on Monday announced that the foreclosure review had ended, and that the servicers subject to the foreclosure settlement would make $8.5 billion in cash payments and other assistance to borrowers victimized by servicing errors.

Borrowers could receive up to $125,000 each, in a deal that is split between $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance such as modifications.

-- Written by Antoine Gara in New York

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