JPMorgan Chase & Co. said profit fell 7.3% in the fourth quarter after $2.6 billion in settlements linked to Bernard Madoff's Ponzi scheme as legal costs ended a three-year streak of record annual earnings.
Net income declined to $5.28 billion, or $1.30 a share, from $5.69 billion, or $1.39, a year earlier, according to a news release Monday from JPMorgan, the biggest U.S. bank. Results excluding the Madoff settlement and other one-time items were $1.40 a share. Twenty-two analysts surveyed by Bloomberg estimated $1.37 on average.
Chief Executive Officer Jamie Dimon, 57, is whittling down the firm's list of legal woes that include allegations it misled buyers of mortgage bonds, rigged markets and turned a blind eye to suspicious activity by customers. The Madoff agreement, which the bank said last week reduced fourth-quarter profit by about $850 million, capped a year in which JPMorgan spent more than $23 billion on legal settlements.
"These costs were far higher than anyone anticipated, but they've made tremendous progress putting things behind them," said Pri de Silva, senior banking analyst at CreditSights Inc. in New York. "Things should look better from here."
Shares of the company rose 33% last year, compared with the 35% gain of the 24-company KBW Bank Index, the benchmark's best annual performance since 1997.
JPMorgan avoided prosecution in the Madoff case by acknowledging that it ignored red flags for about 15 years that Madoff used his account to fund his fraud, Manhattan U.S. Attorney Preet Bharara said. Madoff is serving a 150-year federal prison sentence.
Still to be resolved are inquiries into whether the bank's hiring practices in Asia violated anti-bribery laws, as well as possible manipulation of interest rates and currency benchmarks. The bank is also being probed about mortgage-bond trades after the financial crisis.
"What you want to hear is that they're resolving these issues, and that by the end of 2014 they get to a place where we're talking about business operations and not the resolution of litigation or regulatory issues," said Marty Mosby, a bank analyst with Guggenheim Securities LLC.
Dimon is motivated to settle the remaining cases, even if doing so means paying a premium over fighting claims in court, he said last month. Battling regulators and private claimants would expose the firm to being "demeaned in the press nonstop," he said.
"So you may have paid a premium to settle, we thought it was a far better thing to do," Dimon said at a Dec. 11 conference. "It's very hard to go to court in some of these matters if you're a bank."
JPMorgan, which has said it's severing ties with foreign banks and individuals to tighten anti-money laundering controls, said last week it's weighing options including a sale of its prepaid-card business. The bank was the fourth-biggest prepaid-card issuer in 2012, with $9.8 billion of volume, according to the Nilson Report, an industry newsletter.