JPMorgan Chase, the biggest U.S. bank, said fourth-quarter profit fell 6.6% as fixed-income trading revenue dropped 23% and legal costs were about twice as high as some analysts estimated.
Net income declined to $4.93 billion, or $1.19 a share, from $5.28 billion, or $1.30, a year earlier, New York-based JPMorgan said Wednesday. Excluding $990 million in legal expenses and other one-time items, earnings per share were $1.33, topping the $1.32 average estimate of 27 analysts surveyed by Bloomberg.
Wall Street firms contended with shrinking trading revenue in 2014 as three quarters of muted volume was followed by surging volatility across asset classes in the final three months of the year. Large price swings in commodities, rates and credit markets probably deterred clients in the fourth quarter, according to David Konrad, an analyst at Macquarie Group Ltd.
"The tough part about this group is that it kind of has to be Goldilocks volatility -- too little, and you can't make anything on the trades, and too much, you lose money making a market," Konrad said in a telephone interview before JPMorgan released results. "It's been frustrating because we've gone from one extreme to the other."
JPMorgan fell 1.8% to $57.80 at 7:47 a.m. in New York trading.
Net income for the year was a record $21.8 billion, on revenue of $97.9 billion, as legal costs shrank $8.2 billion from 2013. For the fourth quarter, revenue declined 2.3% to $23.6 billion.
Fixed-income trading revenue fell to $2.5 billion on the sale of a commodities unit and lower volume in credit and securitized products. Excluding the sale, fixed-income markets fell 14%, the firm said. Equities-trading revenue rose 25% to $1.1 billion on gains in the derivatives and prime-brokerage business.
Net income at the corporate and investment bank rose 3% to $972 million. Excluding the impact of accounting adjustments tied to the firm's own debt, net income at the corporate and investment bank tumbled 50 percent to $1.1 billion.
Chief Financial Officer Marianne Lake warned investors last month that the bank would probably report a "high teens" percentage drop in trading revenue. Most of the decline stems from the sale of a physical-commodities business and higher interest costs tied to preferred stock, she said. The "core performance" of the trading division probably dropped 4 percent from a year earlier, she said.
The firm's legal expense exceeded several analysts' estimates including the $500 million projection of Wells Fargo & Co.'s Matthew Burnell. John McDonald, an analyst at Sanford C. Bernstein & Co., estimated $400 million.
Chief Executive Officer Jamie Dimon, 58, had to contend once again last year with allegations of misconduct by the bank, this time that currency dealers rigged foreign-exchange benchmarks. JPMorgan agreed in November to pay about $1 billion to resolve U.S. and U.K. investigations into the practice.
The bank settled a related lawsuit this month, agreeing to pay institutional investors about $100 million, and still faces a criminal probe from the Justice Department.
In 2013, Dimon agreed to $23 billion in accords to end U.S. probes of mortgage-bond sales, energy trading and the oversight of services provided to Ponzi-scheme operator Bernard Madoff.
JPMorgan, the world's largest investment bank, is also under scrutiny by regulators pushing to boost the industry's capacity to absorb losses without taxpayer bailouts.
The Federal Reserve laid out a plan last month that may require JPMorgan to add more than $20 billion to its capital by 2019. The company can meet these requirements while delivering strong returns to shareholders, JPMorgan has said.
If the rules get stricter, banks may consider splitting up to unlock value for shareholders, Goldman Sachs Group Inc. analysts wrote this month.
JPMorgan advanced 7% last year, trailing the 13% gain for the 85-company Standard & Poor's 500 Financials Index.
Dimon, who has led JPMorgan since 2006, told employees on Dec. 5 that tests showed no evidence of the cancer he was diagnosed with earlier in the year. He underwent about two months of radiation and chemotherapy to fight the illness.
Wells Fargo & Co., the biggest U.S. mortgage lender, is also scheduled to report results today. Bank of America Corp., the second-biggest bank by assets, and No. 3 Citigroup Inc. will report tomorrow.