JPMorgan Chase reported a 55 per cent jump in earnings for the last three months of 2012 as mortgage fees and other income surged. The bank also released internal reviews of a surprise $6 billion trading loss that has drawn sanctions from regulators and said it would cut its CEO's pay as a result.
JPMorgan, the biggest U.S. bank by assets, will pay Jamie Dimon $11.5 million for 2012, consisting of $1.5 million in salary and restricted stock awards of $10 million. That's less than half what he made last year, $23 million, which made him the highest-paid chief executive of any of the country's mega-banks.
The bank's board of directors sets the pay for Dimon and other top executives. In a call with reporters, Dimon said he wasn't involved in their decision but respected it. When a reporter asked him for his "gut feeling," he replied, "Nope, you're not gonna get it."
It was just the latest reminder of the long shadow cast by the trading loss, which has tarnished the bank's previously sterling reputation as a responsible risk manager and brought about two congressional hearings. On Monday, the Federal Reserve and the Office of the Comptroller of the Currency, both bank regulators, slapped sanctions on JPMorgan for the trading loss and ordered it to tighten up its risk management procedures. JPMorgan, which neither admitted nor denied wrongdoing with the order, says it is working hard to correct any problems.
The bank's board of directors, explaining its decision to cut Dimon's pay, concluded that last year's trading losses were "a serious mistake." However, the board also praised Dimon for his response to the problem, which included reorganizing lines of business, shuttering the division that was responsible and getting rid of top managers.
"Importantly, once Mr. Dimon became aware of the seriousness of the issues presented by the CIO, he responded forcefully by directing a thorough review and an extensive program of remediation," the bank said. The CIO is the Chief Investment Office, the unit where the bets that led to the loss were made.
Dimon is eager to move past the trading loss. The bank said it experienced a "modest loss" over the quarter on the portion of the CIO portfolio that it moved to its investment bank to get cleaned up, but it didn't give details.
Dimon said the trading loss is "very close to being a non-issue from a trading point" of view.
"Companies have problems," he added. "The problem embarrassed us. We're fixing it."
In its report, the bank's board of directors criticized the CIO's former leaders, saying they did not keep the board informed of potential problems and had used unapproved models for calculating risk. When the Wall Street Journal first reported the losses, at least one CIO executive dismissed it, saying it was "based on an inaccurate market perception that the portfolio was unhedged," or not protected against loss, according to the board.
The trading loss could bring even more regulatory headaches. The bank has said it has received requests for information related to government inquiries and investigations by Congress, the Department of Justice, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.K. Financial Services Authority, the state of Massachusetts and others. The bank said it is cooperating with these investigations.
Fourth-quarter earnings shot up 55 per cent over the year. The bank made $5.3 billion after paying preferred dividends, compared with $3.4 billion this time a year ago.
Per share, those earnings amounted to $1.40, blowing away the $1.16 expected by analysts polled by FactSet.
Revenue also beat Wall Street's forecasts, rising 10 per cent to $24.4 billion, after stripping out an accounting charge. Mortgage originations jumped 33 percent. Dimon said the housing market "has turned," echoing a statement he made in October after its third-quarter earnings report. He cited signs that point to an upturn, including housing prices that are rising in parts of the country and weakening foreclosures.
Earlier this month, JPMorgan and nine other banks agreed to spend a combined $8.5 billion to settle the government's charges that they had wrongfully foreclosed on struggling homeowners. The bank said it took an expense of about $700 million related to the settlement.
The stock fell 45 cents to $45.90 in pre-market trading.