Despite Botched Investments, Bank Profits Soar

Earnings reports from the two of the nation’s largest banking institutions indicate they made plenty of money last year, though JPMorgan Chase CEO Jamie Dimon’s paycheck won’t reflect that.

Chase announced a 53 percent profit gain for the fourth quarter of 2012, while Goldman Sachs nearly tripled its profits from the year before. Chase netted a record $5.7 billion for the quarter ending Dec. 31, while Sachs’ profit was $2.89 billion.

The positive report from Chase was tempered by news that Dimon’s 2012 compensation was cut 50 percent, from $23 million to $11.5 million. Dimon was punished for his part in not recognizing the failed bet on derivatives that cost the bank $6.2 billion in losses during the third quarter of 2012.

“The board had to look at the positives, which I think are large, and the negatives,” Dimon said in a statement after the board meeting. “This is one huge embarrassing mistake, and I respect their decision.”

Chase Profits Up 12 Percent for 2012

Nevertheless, JPMorgan Chase had a very good year. Areas like investment banking (up 54 percent to $1.7 billion), asset management (up 60 percent to $483 million) and mortgage banking (profits of $418 million vs. losses of $269 million in 2011) combined to help bank profits rise to $21.3 billion for 2012. That’s a  up 12 percent from $19 billion the year before.

“The firm’s results reflected strong underlying performance across virtually all our businesses for the fourth quarter and the full year, with strong lending and deposit growth,” Dimon said.

At Goldman Sachs, the news was nearly all good. The bank focused on cutting expenses, while its investment decisions were very positive. That helped Sachs earn $2.83 billion, compared with $978 million in the fourth quarter of 2011.

“While economic conditions remained challenging for much of last year, the strengths of our business model and client franchise, coupled with our focus on disciplined management, delivered solid performance for our shareholders,” Goldman’s chairman and chief executive, Lloyd C. Blankfein, said in a news release.

One interesting note about Goldman Sachs, which deals primarily with institutions, not customers, is the compensation package it gave employees. The total compensation was $12.94 billion, an average of just under $400,000 for each of the bank’s 32,400 employees.

B of A Expecting Negative Report

Meanwhile, Bank of America will deliver its fourth-quarter earnings Thursday and while analysts predict a thin 2 cents a share profit, that is a whopping 87 percent drop from fourth quarter 2011. Much of the drop is the result of efforts to unwind legal issues the bank has fought since the decision to buy real estate albatross Countrywide Financial in 2008.

Bank of America paid $4 billion for Countrywide in 2008. Analysts estimate the toll to mop up all the problems that it caused since then, has been more than $40 billion. That includes $2.7 billion the bank paid Fannie Mae as part of a settlement for misrepresenting loans and another $2.5 billion as part of a foreclosure settlement.

“Through these actions, Bank of America is addressing substantially all of its remaining exposure to repurchase obligations for residential mortgage loans sold directly to Fannie Mae,” Bank of America said in a statement.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

Jamie Dimon, CEO of JPMorgan Chase

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    Sources:

    1. David, J. (2013, January 16). JPMorgan Beats on Earnings; Dimon Suffers ‘Whale’ Fallout. CNBC. Retrieved from http://www.cnbc.com/id/100381581
    2. Silver-Greenberg, J. (2013, January 16). JPMorgan Cuts Dimon’s Pay, Even as Profits Surge. The New York Times. Retrieved from http://dealbook.nytimes.com/2013/01/16/jpmorgan-4th-quarter-profit-jumps-53-to-5-7-billion/
    3. Kopecki, D., Son, Hugh, and Tracer, Z. (2013, January 16). JPMorgan Cuts Dimon Pay 50%, Says CEO Responsible for Lapses. Bloomberg. Retrieved from http://www.bloomberg.com/news/2013-01-16/jpmorgan-halves-dimon-pay-says-ceo-responsible-for-lapses-1-.html
    4. Zhang, M. (2013, January 16). Bank Of America Earnings Preview: Profits to Plunge In 4Q On Legal Charges, Revenue Concerns. International Business Times. Retrieved from http://www.ibtimes.com/bank-america-earnings-preview-profits-plunge-4q-legal-charges-revenue-concerns-1018530