JPMorgan fails key test; profit falls 8%

People pass a Chase Bank branch in New York in this file photo. JPMorgan Chase said Wednesday that it earned $4.99 billion in the first quarter.
People pass a Chase Bank branch in New York in this file photo. JPMorgan Chase said Wednesday that it earned $4.99 billion in the first quarter.

JPMorgan Chase said Wednesday that its first-quarter profit fell more than 8 percent from a year ago and tried to soothe investor concerns after it failed a key regulatory test designed to prevent another financial crisis.

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First-quarter profit at JPMorgan, the nation's largest bank by assets, was hurt by weak results at its investment banking division and by loans to oil and gas companies that are now struggling to make payments because of low energy prices.

As JPMorgan was announcing its quarterly results Wednesday, the Federal Deposit Insurance Corp. and the Federal Reserve announced that JPMorgan, as well as four other banks, failed to meet a regulatory requirement put in place after the financial crisis. They were required to come up with a plan, known as a "living will," to unwind their operations in the event of a bankruptcy or other upheaval in a way that would avoid triggering another broad financial meltdown.

It was a symbolic defeat for JPMorgan and its executives. JPMorgan was one of the few banks to weather the housing downturn and financial crisis, and JPMorgan Chief Executive Officer Jamie Dimon has repeatedly touted the firm's "fortress" balance sheet, which he said would protect the bank from any future crisis.

JP Morgan Chief Financial Officer Marianne Lake told investors Wednesday that she did not expect that the bank's results would be held back as it improves its plan to meet regulator concerns. And investors did not seem to be concerned. JPMorgan shares rose $2.51, or 4.2 percent, to close Wednesday at $61.79 amid a broad rally in bank stocks.

Still, this latest regulatory issue comes at a difficult time for JPMorgan and other big banks. Profits and share prices have fallen in recent months because loans to energy companies have gone bad, and the Federal Reserve signaled that it will slow the pace of interest rate increases, which hurts bank profits. Despite Wednesday's rally, the financial sector is the worst performing sector of the Standard & Poor's 500 index this year.

JPMorgan said Wednesday that it earned $4.99 billion after payments to preferred shareholders in the first quarter. That compares with a profit of $5.45 billion a year earlier. On a per share basis, the bank earned $1.35, compared with $1.45 a year earlier.

The results beat analysts' expectations of $1.26 per share, according to FactSet. That estimate typically excludes one-time items.

The bank had to set aside $719 million in the quarter to cover potential defaults of loans to oil and gas companies, and materials and mining companies. JPMorgan, like most of its competition, made billions in loans to drilling companies when oil prices were near $100 a barrel. The price fell to a 12-year low to below $27 a barrel in the first quarter.

Net revenue at the bank totaled $23.24 billion, compared with $24.07 billion in the same period a year earlier.

The company said profit at its investment bank fell 22 percent from the year before to $1.98 billion. Profit from its consumer bank rose 12 percent to $2.49 billion.

Business on 04/14/2016

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