TheChek News Flow

Reports Q4 (Dec) earnings of $1.30 per share, $0.06 better than the Capital IQ Consensus Estimate of $1.24; The Firm's return on tangible common equity for the fourth quarter of 2013 was 14%, compared with 15% in the prior year. Adjusted for the significant items EPS would have been $1.40 this year compared with $1.35 in the prior year and CapIQ adjusted consensus of $1.34.ROTCE would have been 15% this year, flat compared with the prior year.

Revenues on a reported basis fell 2.1% year/year to $23.16 bln vs the $23.19 bln consensus.

Fourth-quarter results included the following significant items:

• • An increase of $812 million after-tax ($0.21 per share) from gain on sale of Visa shares;
  • An increase of $306 million after-tax ($0.08 per share) from gain on sale of One Chase Manhattan Plaza;
  • A decrease of $1.1 billion after-tax ($0.27 per share) for legal expense, including announced Madoff settlements;
  • An increase of $775 million after-tax ($0.20 per share) from reduced reserves in Real Estate Portfolios & Card Services;
  • A decrease of $1.2 billion after-tax ($0.32 per share) from funding valuation adjustments ("FVA") and debit valuation adjustments1 ("DVA").
• Fortress balance sheet maintained Basel I Tier 1 common of $149 billion, and ratio of 10.7%
• • Estimated Basel III Tier 1 common ratio of 9.5%
  • High Quality Liquid Assets of $522 billion
  • Book Value $53.25 compared to $52.01 in Q3

Consumer & Community Banking:

• Net income was $2.4 billion, an increase of $383 million, or 19%, compared with the prior year, due to lower provision for credit losses and lower noninterest expense, largely offset by lower net revenue. Net revenue was $11.3 billion, a decrease of $1.0 billion, or 8%, compared with the prior year. Net interest income was $7.1 billion, down $199 million, or 3%, driven by spread compression in Credit Card, lower deposit margins and lower loan balances due to portfolio runoff, partially offset by higher deposit balances. The provision for credit losses was $72 million, compared with $1.1 billion in the prior year and a benefit of $267 million in the prior quarter.
• Mortgage originations were $23.3 billion, down 54% from the prior year and 42% from the prior quarter. Purchase originations of $13.0 billion were up 6% from the prior year and down 35% from the prior quarter. Mortgage Banking net income was $562 million, an increase of $144 million, or 34%, compared with the prior year, driven by lower noninterest expense and provision for credit losses, predominantly offset by lower net revenue. Net revenue was $2.2 billion, a decrease of $1.1 billion compared with the prior year.
• Mortgage Servicing pretax income was $2 million, compared with a pretax loss of $913 million in the prior year, reflecting lower expense and higher revenue. Mortgage net servicing-related revenue was $689 million, an increase of $71 million. MSR risk management was a loss of $24 million, compared with income of $42 million in the prior year.
• Card, Merchant Services & Auto net income was $1.0 billion, an increase of $190 million, or 23%, compared with the prior year, driven by lower provision for credit losses, partially offset by lower net revenue. Net revenue was $4.7 billion, down $140 million, or 3%, compared with the prior year. Net interest income was $3.3 billion, down $222 million compared with the prior year, primarily driven by spread compression in Credit Card.

Corporate & Investment Banking:

• Net income was $858 million, down 57% compared with the prior year. These results primarily reflected lower revenue and a lower benefit from the provision for credit losses, partially offset by slightly lower noninterest expense. Net revenue was $6.0 billion compared with $7.6 billion in the prior year. Net revenue included a $1.5 billion loss as a result of implementing a funding valuation adjustment ("FVA") framework for OTC derivatives and structured notes. This change reflects an industry migration towards incorporating the cost or benefit of funding into their valuation; the majority of this adjustment relates to uncollateralized derivatives. Net revenue also included a $536 million loss from debit valuation adjustments.
• Banking revenue was $3.0 billion, down 4% from the prior year.
• Investment banking fees were $1.7 billion, down 3% from the prior year, driven by lower debt underwriting fees of $801 million, down 19% from a record prior year, and by lower advisory fees of $434 million, down 7% from the prior year. This was predominantly offset by higher equity underwriting fees of $436 million, up 65% from the prior year, on strong market issuance and improved market share.
• Treasury Services revenue was $1.0 billion, down 7% compared with the prior year, driven by lower trade finance revenue.
• Lending revenue was $373 million, primarily reflecting net interest income on retained loans, fees on lending-related commitments, and gains on securities received from restructured loans.
• Markets & Investor Services revenue was $3.0 billion, down 33% from the prior year.
• Combined Fixed Income and Equity Markets revenue was $4.1 billion, flat compared with the prior year. In the prior year, Fixed Income Markets also included a modest loss from the synthetic credit portfolio.
• Securities Services revenue was $1.0 billion, up 3% from the prior year, primarily driven by higher custody and fund services revenue, due largely to higher assets under custody and higher deposits.