JPMorgan Chase reported an 18.5 percent slump in first-quarter earnings on Friday, as the nation’s largest bank grappled with dual challenges: sluggish revenue from trading and lackluster mortgage lending.
Both issues, broadly buffeting the banking industry, damped profits at JPMorgan.
The net earnings of $5.27 billion, or $1.28 a share, came in slightly below Wall Street analysts’ expectations of $1.40 a share on revenue of $24.53 billion.
Revenue dropped to $23.86 billion.
As the nation’s largest bank, JPMorgan has become a kind of bellwether for the broader industry. The lukewarm results on Friday underscored how Wall Street has struggled to recoup the revenue drained from a slowdown in trading. Compounding the problem, revenue from underwriting bonds has also dipped in recent quarters.
At an investor conference in February, JPMorgan executives foreshadowed the slowdown, predicting that revenue from trading would fall by roughly 15 percent from just a year earlier.
Ahead of the earnings, some bank analysts expected the trading woes to be aggravated as the nation’s biggest banks adapt to new rules on derivative trading.
For JPMorgan, the results also pointed to just how expensive it has been for the bank to win some kind of peace with Washington. All told, JPMorgan has paid roughly $20 billion in just the past 12 months to resolve a spate of government investigations.
Jamie Dimon, the bank’s chief executive, discussed the steep price of reconciliation in his annual letter to shareholders. He also emphasized that negotiating settlements â€" including a $13 billion agreement with government authorities over the sale of mortgage securities in the years before the financial crisis â€" while trying to reduce risk, has been “painful†and “nerve-racking.â€
In fact, in the third quarter of last year, the hefty legal costs led JPMorgan to report its first quarterly loss ever under Mr. Dimon’s leadership.
Part of the slowdown came from a slowdown in revenue from fixed-income trading, which fell roughly 26 percent to $3.76 billion from $4.75 billion a year earlier.
Still, Mr. Dimon has continued to sound an optimistic tone, emphasizing that the bank has worked to move beyond its legal problems. With those settled, Mr. Dimon has said the bank and its senior executives can focus on further expanding the businesses.
“JPMorgan Chase had a good start to the year, given there were industrywide headwinds in markets and mortgage,†he said in a statement on Friday.
JPMorgan’s earnings also contained a number of bright spots, including an increase in deposits, along with an uptick in auto loans. Auto loans grew by 3 percent, to $6.7 billion from $6.5 billion a year earlier. Private banking was another rosy area for the bank, with revenue rising to $1.5 billion, up 4 percent from the same period last year.
Still, the strength of those businesses could not completely offset the continued decline in trading revenue and mortgage refinancing, which had once been a particularly robust source of profit for JPMorgan and its rivals.
Now, the heady days of refinancing seem distant. Rising interest rates, coupled with an increase in housing prices, have damped homeowners’ appetite to refinance. Mortgage loan originations also dropped to $17 billion, down 68 percent from a year earlier, and 27 percent from the previous quarter.
Analysts have winced at the mortgage slowdown. In a note earlier this month, for example, analysts from Guggenheim Securities said that even an uptick in home purchases last quarter could not make up for the steep drop in revenue from mortgage refinancing.
To help deal with the tough lending landscape, JPMorgan has worked to whittle down expenses. Noninterest expenses dropped 5.1 percent, to $14.64 billion, from the same period a year earlier.
JPMorgan has also pruned some its highest-risk businesses, including the so-called correspondent banking, in which the bank relies on foreign institutions to process financial transactions overseas. To fortify its money laundering controls, JPMorgan has hired an additional 13,000 employees since 2012 to handle regulatory issues and compliance â€" a push that Mr. Dimon emphasized in his annual letter on Wednesday.
Beyond slashing expenses to bolster profit, JPMorgan has worked to bring in more from its asset-management business. As part of that push, JPMorgan wooed more customers. Total client assets in that business were up 10 percent. Still, JPMorgan reported that net income for the business fell to $441 million from $487 million in the same period last year, reflecting higher noninterest expenses.
