), one of the most venerable of Wall Street firms, did something on Friday that many people didn't think would ever happen: Report a quarterly loss.
For investors, though, this is good news because they now know how much the bank may have to pay to solve its myriad legal and regulatory issues.
To be clear, the problems stemming from a criminal investigation into mortgage bond sales and other issues aren’t going away cheaply. JPMorgan took a $7.2 billion charge in the current quarter, wiping out its quarterly profit. As result, JPMorgan lost $380 million, or 17 cents per share. It was the first time JPMorgan's earnings weren’t in the black since 2004.
Excluding these one-time costs, though, JPMorgan's quarter wasn't bad given the state of the economy. Per-share profit was $1.40 per share, exceeding the $1.30 Wall Street analysts had expected. Revenue at the New York company fell 8% to $23.9 billion, in line with estimates.
Equity trading was a bright spot, with revenue surging 20% to $1.25 billion, as was consumer and community banking, where earnings soared 15% to $2.7 billion. The asset management business, which includes the company’s mutual and hedge funds, also did well. Revenue rose 12 percent to $2.76 billion, and profit increased 7 percent to $476 million.
Other JPMorgan businesses struggled in what Guggenheim Securities analyst Marty Mosby described to Bloomberg News as a quarter that "is probably going to be the most challenging" for the banks since they began their recovery more than two years ago.
Revenue at the company’s corporate and investment banking unit fell 2% to $8.19 billion while trading revenue also slumped 2% to $8.19 billion. Fixed-income trading revenue plunged 8 percent to $3.44 billion from a year earlier.
More red ink may be in the bank’s future. According to Bloomberg News, JPMorgan has been discussing an $11 billion deal with state and federal officials. With a market capitalization of about $198 billion, the bank can afford to pay such a steep price.
JPMorgan shares trade at a price-to-earnings ratio of 8.7, around the cheapest they have been in five years. The stock, which is up about 20% this year, is priced about 19% under its average 52-week target price of $62.36.
The time to buy the shares is now for one reason: Jamie Dimon. JPMorgan's CEO (pictured) has survived the "London Whale" episode and countless economic ups and downs. He is considered by many to be among the smartest people on Wall Street. That’s why investors would be wise to invest in his bank.
--Jonathan Berr does not own shares of the listed stocks.