The bank, led by Chief Executive Officer Jamie Dimon, booked a $7.2 billion charge in the third quarter amid provisions to cover legal expenses, including part of a record $13 billion settlement of mortgage-bond probes. Still to be resolved are inquiries into whether hiring practices in Asia violated anti-bribery laws, as well as possible manipulation of interest rates and currency benchmarks.
That hasn’t stopped investors from accepting lower relative interest rates to own JPMorgan’s debt. The average spread on the bank’s dollar-denominated, senior unsecured debentures declined to 88 basis points on Jan. 20 from 117 at the end of September, Bloomberg data show. That’s below the 101 basis-point average for similar debt linked to Citigroup, Morgan Stanley, Bank of America Corp. and Goldman Sachs Group Inc., which paid an extra 136 on Sept. 30, the data show.
The JPMorgan bonds mature in 7.5 years on average, compared with 5.5 years for its competitors. A basis point is 0.01 percentage point.
While the bank has a lower Tier 1 capital ratio than each of its U.S. peers, it still generates the most profit, Bloomberg data show. Net income of almost $18 billion in the last four quarters is 29 percent more than second-ranked Citigroup, giving JPMorgan greater ability to withstand charges.
“When we talk about ability to absorb legacy settlement costs and other charges, no one’s better equipped to do that than JPMorgan because they can simply earn so much,” said Conor Pigott, a credit analyst at Barclays Plc in New York.
The company may produce an almost 11% return on equity this year, the highest estimate among competitors that may generate an average of 8.6 percent, Bloomberg data show.
“The earnings power of the baseline bank has remained strong and its businesses have not been impacted by the litigation,” said Stuart Plesser, an analyst at S&P, which has an A credit rating for JPMorgan. “That earnings power is going to take over at some point in time.”