01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase closed 2012 with record net income of $21.3 billiona, or $5.20 per diluted share, up 12% from $19.0 billion in 2011, on net revenue of $97.0 billion that was roughly flat year over year.
Total assets reached $2.4 trillionb and stockholders' equity $204.1 billion. The earnings gain was driven by a $4.2 billion lower provision for credit losses ($3.4 billion versus $7.6 billion), partially offset by a 3% rise in noninterest expense to $64.7 billion, largely from higher compensation. Return on common equity held at 11%.
The quality of the year is clouded by the Chief Investment Office (CIO) synthetic credit portfolio losses, which reduced principal transactions revenue by $5.8 billionc for the first half of 2012 plus $449 million in the third quarter. The episode produced a restatement of Q1 2012 results (reducing net income by $459 million), a material weakness in internal control over financial reporting that was remediated by September 30, 2012, and January 2013 Consent Orders with the Federal Reserve and OCC. Separately, the Firm entered into January 2013 Consent Orders over Bank Secrecy Act/anti-money laundering controls, and it faces a long list of litigation, including a $6.05 billion interchange settlement (of which the Firm's share is roughly 20%) and a $1.1 billion mortgage-related settlement.
Litigation expense was $5.0 billiond in 2012. Capital and liquidity remain strong. The Basel I Tier 1 common ratio rose to 11.0% from 10.1%, while the estimated Basel III Tier 1 common ratio is about 8.7%, with a target of 9.5% by year-end 2013.
Management guided to roughly flat 2013 net interest income, a target of about $1 billion lower expense, and a $3.0 billion common equity repurchase authorization for Q1 2013. Credit quality improved, with net charge-offs down 26% to $9.1 billion, though nonperforming assets rose 4% to $11.7 billion, partly due to regulatory guidance.
02—Key points
Key Highlights
- Record 2012 net income of $21.3 billion ($5.20 diluted EPS), up 12% year over year; ROE steady at 11%.
- Net revenue flat at $97.0 billion: lower CIO-driven principal transactions and net interest income offset by record mortgage fees ($8.7 billion, up from $2.7 billion).
- Provision for credit losses fell 55% to $3.4 billion, supported by a $5.5 billion reduction in the consumer allowance; net charge-offs fell to $9.1 billion.
- CIO synthetic credit portfolio losses of about $6.3 billion in 2012, a material weakness in internal controls at March 31, 2012, and a restatement of Q1 2012 results, followed by January 2013 Consent Orders with the Federal Reserve and OCC.
- Capital strengthened: Basel I Tier 1 common ratio 11.0% (from 10.1%); estimated Basel III Tier 1 common ratio ~8.7%, with a 9.5% year-end 2013 target; 2013 CCAR plan submitted.
- Significant legal and regulatory overhang, including a $6.05 billion interchange settlement, Bank Secrecy Act/AML Consent Orders, a $753 million foreclosure settlement, and a $1.1 billion global mortgage settlement; 2012 litigation expense was $5.0 billion.
- 2013 outlook: net interest income roughly flat, expense targeted about $1 billion lower than 2012 (excluding litigation and foreclosure costs), and a quarterly Treasury and CIO net loss of about $300 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $97.03B$97.23B | −0.2% |
| Interest Expense | $11.04B$13.60B | −18.8% |
| Net Income | $21.28B$18.98B | +12.2% |
| EPS (Basic) | $5.22$4.50 | +16.0% |
| EPS (Diluted) | $5.20$4.48 | +16.1% |
| Shares Outstanding (Basic) | 3.81B3.90B | −2.3% |
| Shares Outstanding (Diluted) | 3.82B3.92B | −2.5% |
05—Questions
Frequently Asked Questions
How much did JPMorgan Chase earn in 2012, and how did it compare with 2011?
Net income was a record $21.3 billion, or $5.20 per diluted share, up from $19.0 billion, or $4.48 per share, in 2011. The increase came mainly from a much lower provision for credit losses, partly offset by higher noninterest expense. Net revenue was essentially flat at $97.0 billion.
What were the CIO trading losses, and what regulatory consequences followed?
The Chief Investment Office's synthetic credit portfolio lost $5.8 billion in the first half of 2012, and retained index credit derivative positions lost another $449 million in Q3. The Firm restated Q1 2012 results, reducing net income by $459 million, and disclosed a material weakness in internal control over financial reporting that was closed by September 30, 2012. In January 2013 it entered Consent Orders with the Federal Reserve and the OCC covering risk management and model governance related to CIO.
Is the bank well capitalized, and what are the key capital targets?
Yes. The Basel I Tier 1 common ratio was 11.0% at year-end 2012, up from 10.1%, and total Tier 1 capital was $160.0 billion. The estimated Basel III Tier 1 common ratio is about 8.7%, with a target of 9.5% by year-end 2013. The Firm submitted its 2013 CCAR capital plan, with a regular $0.30 quarterly dividend expected for Q1 2013 and up to $3.0 billion in common equity repurchases authorized for Q1 2013.
What are the biggest legal and regulatory risks disclosed?
Key risks include the Bank Secrecy Act/AML Consent Orders from January 2013; the interchange litigation settlement, where the Firm's share of a $6.05 billion cash payment is about 20%; the mortgage servicing global settlement (about $1.1 billion in cash plus roughly $4.2 billion in borrower relief) and the $753 million Independent Foreclosure Review settlement; and private-label MBS repurchase and investor litigation involving roughly $170 billion of securities. The Firm estimates reasonably possible losses above reserves of $0 to about $6.1 billion.
What is the outlook for 2013?
Management expects net interest income to be roughly flat, with modest pressure on yields offset by asset growth. It targets 2013 expense about $1 billion lower than 2012, excluding litigation and foreclosure costs. It expects a quarterly Treasury and CIO net loss of about $300 million and quarterly Other Corporate net income of about $100 million before material litigation. Management also expects elevated mortgage repurchase and default-related costs, and that mortgage production margins that peaked in 2012 will decline over time.
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