Highfields Capital Management and JPMorgan Chase
Jonathon Jacobson’s Highfields Capital Management’s top new purchases are Air Products & Chemicals, Inc. (APD), Broadcom Corporation (BRCM), Applied Materials, Inc. (AMAT), Royal Dutch Shell (RDS.A), and JPMorgan Chase (JPM). Highfields sold out positions in CBS Corporation (CBS) and Hess (HES).
Highfields Capital Management initiated a 1.36% position in JPMorgan Chase (JPM) in 4Q 2013.
At JPMorgan’s recent annual investor day, the management said trading revenue declined 15% this year due to a downturn in trading activity in fixed income markets. The bank provided a cautious outlook on profits and downgraded projections of return on tangible common equity (ROTCE) to 15% to 16% for 2014, down from 16% in 2013. The bank also revealed plans to cut 6,000 mortgage banking positions in 2014, compared with earlier estimates of 4,000 cuts.
JPMorgan shares were up in November last year after the bank put its legal issues behind it by agreeing to pay a $13 billion fine over charges of selling bad mortgage bonds ahead of the financial crisis, and the bank paid out $2 billion for its involvement in the Bernie Madoff Ponzi scheme. The company also agreed to pay $614 million in mortgage settlement recently. The firm has shelled out around $20 billion in government settlements in 2013. It has set aside nearly $30 billion in reserve assets since 2010 to cover its legal expenses.
Chief executive Jamie Dimon said in the bank’s 4Q earnings statement, “We are pleased to have made progress on our control, regulatory and litigation agendas and to have put some significant issues behind us this quarter.” He also said, “It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward.”
The bank posted a 7.3% drop in its fourth-quarter earnings as legal costs continued to impact profits coupled with weak results at JPMorgan’s investment banking unit. Revenue fell 1.1% to $24.11 billion, and net earnings were $5.28 billion (or $1.30 a share) compared with a profit of $5.69 billion (or $1.39 a share) a year earlier. 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.
The bank, like its other peers such as Wells Fargo & Co. (WFC) and Citigroup, also saw a huge fall in mortgage income amid rising interest rates ahead of the Federal Reserve’s tapering.
In March 2013, JPMorgan was given approval by the Federal Reserve to repurchase up to $6.0 billion in common shares through the first quarter of 2014.