JPMorgan Stock Looks Like a Dud for 2015 (JPM)

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JPMorgan Chase & Co. (JPM) showed that legal expenses and loan-loss reserves are still hurting bank profits — and JPM stock — even all these years after the crisis. In a kind of recurring nightmare, fourth-quarter earnings fell on those costs, among other issues.

JPM stock JPMorgan Chase NYSE:JPM JPM stockAs much as the banks have done to clean up their balance sheets and put their legal woes behind them, something new always seems to crop up.

Yes, the hangover of the housing mess is pretty much gone for JPM, with bad loans wiped from the books and all the attendant legal actions now settled for billions of dollars. And yet now JPM stock is under pressure from a new round of costly problems.

JPM is being investigated by the Department of Justice over alleged shenanigans in the foreign-exchange markets and is widely expected to settle. But higher-than-expected legal costs related to the investigation took a surprise toll on the bottom line.

Furthermore, JPM hiked its provision for credit losses amid significant growth in commercial loans. True, that’s just good thinking — more lending means more risk those loans could go bad — but it still contributed to disappointing bottom-line results.

In another continuing crisis, a lack of volatility in the bond market caused revenue in the lucrative fixed-income trading business to fall sharply. Year-over-year, revenue dropped 23% to $2.5 billion. Even on an adjusted basis stripping out the contributions from businesses since sold, fixed-income trading revenue dropped 14%.

True, trading revenue from equities grew sharply as volatility picked up in the stock market, but the real money is in bonds. Equity markets revenue increased 25% to $1.1 billion.

JPM Stock — The Hits Keep Coming

In other bad news, revenue from home loans fell by $405 million to $1.9 billion, and asset management, which is supposed to be a solid, low-risk profit performer, saw income drop year-over-year. The commercial loan business also sustained a profit drop and net interest margins remained squeezed by interest rates sitting at near-historic lows.

In a rare bright spot, record fees for debt underwriting allowed investment banking revenue to rise 8 percent to $1.8 billion. However, much of that was offset by $1.1 billion in legal expenses.

JPM stock responded to the news with a fairly steep selloff. A drop of more than 4% is pretty big for a component of the Dow Jones Industrial Average, especially when its the nation’s biggest bank by assets.

The selloff is likely overdone — only because they almost always are — but that doesn’t make JPM stock a buy on the dip. After all, JPM stock lagged the broader market by a wide margin last year, gaining just 7%, and this year looks like it could offer more of the same.

The bank continually finds itself in trouble with regulators. Fair or not, that’s headwind for profitability and JPM stock. The housing market isn’t picking up, trading revenue remains subdued and interest rates could stay at depressed levels longer than first thought.

Those pitfalls and uncertainties make JPM stock a hold at best. Another year of gains are likely in store, but not enough to beat the market.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/jpmorgan-jpm-stock-earnings/.

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