It was the loss heard around the world: On Friday, JPMorgan reported its first quarterly loss since 2004 and the first during Jamie Dimon’s tenure at CEO.
Thanks to a $9.2 billion charge for litigation expenses, JPMorgan reported a quarterly loss of $380 million, or 17 cents per share. JPMorgan’s (JPM) stock actually rose a hair Friday but it's down more than 1% midmorning, and the loss has far-reaching implications.
According to FactSet, the blended earnings growth rate for the S&P 500 has fallen to 0.8% from 2.8% on Oct. 4 and the growth rate for the financial sector has fallen to a negative 3.5% vs. 8.9% on Oct. 4. “JPMorgan Chase is the largest contributor to the decline in both earnings growth rates this past week,” writes John Butters, senior earnings analyst at FactSet. “If this company is excluded, the earnings growth rate for the S&P 500 would improve to 3.3%, and the earnings growth rate for the financials sector would improve to 12.4%.”
In the aftermath of Friday’s news – accompanied by JPMorgan’s declaration that it has amassed $23 billion in reserves to cover litigation expenses – most observers determined that JPMorgan is a victim of government overreach rather than rouge firm finally getting its just desserts.
“Such is the cost of the Obama Administration’s campaign to punish Morgan CEO Jamie Dimon for his refusal to salute every government desire,” declared The Wall Street Journal editorial page.
As the news was breaking Friday morning, Henry Blodget and I were chatting with Former Oklahoma Governor Frank Keating, current president & CEO of the American Bankers Association, the main lobbying arm of the $14 trillion banking industry.
Keating wasn’t able to comment on the specifics of JPMorgan’s quarter but did have a recommendation for member banks facing similar litigation threats.
“My advice for banks: if you didn’t do it, don’t settle, whether in the fair lending space or bum mortgage space,” Keating says.
The JPMorgan saga also provided Keating an opportunity to respond to the commonly held belief that the financial sector has Washington D.C. in its back pocket.
“I would say if they’re so suffocatingly in charge, how come the government is going after ‘em every minute and bleeding ‘em of billions and billions of dollars?” he asks.
It’s a fair question and good point. The answer, I suspect, is the pendulum is swinging back after years in which Wall Street really did get its way with Washington on just about everything.