JPMorgan Chase increased its litigation reserve by more than $1.5 billion in the third quarter to help cover a "crescendo" of potential legal claims.
"This addition to reserves covers a number of different matters, some of which you've been reading about," Chief Financial Officer Marianne Lake said today at the Barclays Global Financial Services Conference in New York. "There's been a crescendo of activity in past weeks and we are reacting to that where it makes sense."
JPMorgan added 3,000 employees to bolster internal controls and compliance as it grapples with multiple investigations and regulatory orders, Lake said. The U.S. is conducting criminal investigations linked to the bank's energy-trading and mortgage- backed securities businesses as well as separate probes of its anti-money-laundering safeguards, foreclosures, credit-card collections and a record trading loss in London last year.
While executives think they've set aside enough money to cover the bank's legal expenses for the quarter, the final cost could change, said Lake, 43. She declined to give an estimate for how large the litigation reserve might become.
"We do expect to add to litigation reserves in the quarter, which will more than offset the $1.5 billion or so of consumer reserve releases" that the bank is forecasting, Lake said. "Things are still evolving. There's three more weeks" in the quarter, she said.
The bank named two new members to its board and announced expanded powers for lead director Lee R. Raymond to help bolster risk oversight, the company said in a statement earlier today. The move follows Chief Executive Officer Jamie Dimon's successful battle to retain his role as chairman earlier this year.
Linda B. Bammann, who previously served as chief risk officer at Bank One Corp. when Dimon ran that bank, and General Electric Co. executive Michael A. Neal were nominated to the board. They would replace Ellen V. Futter and David M. Cote, former members of JPMorgan's risk committee who stepped down in July after narrowly winning re-election in May.
The bank also said it expects to lose money on home lending in the second half of the year as interest rates rise and mortgage volume drops as much as 40 percent from the first six months of 2013, Lake said.
Pretax profit margins and income on mortgage lending will be "slightly negative" in the third and fourth quarters, Lake said.
"Although this may have happened sooner than we had expected, we did contemplate a more normal rate environment in our longer-term targets," Lake said. As a result, the company's projected mortgage production pretax income is still $1.5 billion, she said.
Third-quarter revenue from stock and bond trading may drop by as much as 5 percent from a year earlier, she said.
Trading revenue is "tracking well versus the third quarter of last year, but September last year was particularly strong and we don't expect it to be as strong as last year," Lake said.
JPMorgan, which generates the most revenue from trading of any bank, produced $4.77 billion in last year's third quarter. Lake's forecast suggests a minimum of $4.53 billion for the current period, which would be a 16 percent drop from the second quarter.