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Analyzing the negative trends in JPMorgan’s 4Q results

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Nov. 20 2019, Updated 2:35 p.m. ET

JPMorgan’s two main negative trends in the fourth quarter 

There were many negatives for JPMorgan Chase (JPM) in the fourth quarter. We’ll look at the two main negative trends. They were a drag on JPMorgan’s performance in the fourth quarter.

However, the two negatives have been part of a longer-term trend. The negatives aren’t specific to this quarter. Any improvement on these two fronts will help JPMorgan report better numbers in the future.

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Legal costs were a drag 

JPMorgan’s results were impacted negatively by litigation costs. It cost JPMorgan $900 million to settle various litigations. The expense had a negative impact on the fourth quarter results. However, management said that similar costs aren’t likely in future quarters. Due to litigation costs, the stock fell by nearly 3.5% on the day of the results. This also led to a fall in broader ETFs—like the Financial Select Sector SPDR (XLF).

Mortgage banking was negative

Mortgage banking continued to be an Achilles’ heel for JPMorgan. Net income continued to decline. The quarter also saw a steep decline of 43%. This continued the trend from previous quarters. JPMorgan wants to increase the efficiency of its Mortgage Banking sub-segment.

In the fourth quarter, JPMorgan decreased its employee head count in the Mortgage Banking sub-segment. As you can see in the above chart, it decreased the employee head count by nearly 7,500. This is part of JPMorgan’s plan to reduce costs and increase profitability.

While JPMorgan has been focusing on increasing efficiency, other companies—like Wells Fargo (WFC)—have been expanding their market share in this sub-segment. Other companies—like Bank of America (BAC) and Citibank (C)—are in a situation similar to JPMorgan.

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