March 29, 2024

DealBook: JPMorgan Cuts Dimon’s Pay, Even as Profit Surges

JPMorgan Chase's headquarters in Manhattan.Mark Lennihan/Associated PressJPMorgan Chase’s headquarters in Manhattan.

Even as profit surged, the board of JPMorgan Chase cut the pay package of its chief executive, Jamie Dimon, by 50 percent, in light of a multibillion-dollar trading loss last year.

By the overall numbers, it was a good year for JPMorgan. The bank reported a record profit of $5.7 billion for the fourth quarter, up 53 percent from the period a year earlier. Revenue was also strong, rising 10 percent, to $23.7 billion for the period.

“The firm’s results reflected strong underlying performance across virtually all our businesses for the fourth quarter and the full year, with strong lending and deposit growth,” Mr. Dimon said in statement.

But the year was clouded by a multibillion-dollar trading loss stemming from a bad bet on derivatives. JPMorgan continues to unwind the bungled trade, which had racked up $6.2 billion in losses through the third quarter of 2012. The bank said it “experienced a modest loss” in the last three months of the year.

Related Links

In light of the trading losses, the bank’s board voted to reduce Mr. Dimon’s total compensation. That decision was driven by a desire to hold him accountable for some of the oversight failings that led to the troubled bet, according to several people close to the board.

The board cut Mr. Dimon’s total compensation for 2012 to $11.5 million from $23 million a year earlier. While his salary remained the same at $1.5 million, his bonus was reduced to $10 million, paid out in restricted stock.

On an earnings call on Wednesday, Mr. Dimon emphasized that this latest quarter largely signaled the end of the trading debacle. “We are getting near the end of it,” he said. Mr. Dimon acknowledged that the board “had a tough job” in assessing how to reduce his total compensation for the year. While “this was one huge mistake,” Mr. Dimon said, the board had to look at “the positives and the negatives.” He added that he “respects their decision.”

Although Mr. Dimon’s compensation fell sharply, he dodged much of the criticism for the trading losses in two reports released on Wednesday. One report details the result of a sweeping investigation into the trades led by Michael J. Cavanagh, formerly the bank’s chief financial officer, and the other outlines the board’s findings.

In the case of Mr. Dimon, the reports mainly took aim at his over-reliance on senior managers. “He could have better tested his reliance on what he was told,” the investigation found.

Instead, much of the blame centered on Ina R. Drew, who oversaw the chief investment unit where the trading took place. Ms. Drew resigned in May shortly after the losses were disclosed.

Under Ms. Drew’s leadership, there were failures “in three critical areas,” including the execution of a complex trading strategy and gaps in oversight of the large portfolio, according to the investigation. The report indicated that Ms. Drew failed “to appreciate the magnitude and significance of the changes” as the riskiness of the trades escalated.

Barry Zubrow, the bank’s former chief risk officer, was also singled out. Douglas Braunstein, who left his position as chief financial officer in November, was cited “for weaknesses in financial controls.” The investigation found that the organization should “have asked more questions or to have sought additional information about the evolution of the portfolio.”

Despite the overhang of the bad bet, JPMorgan produced record profit for the quarter, as economic and credit conditions improved. The bank reduced the money it set aside for potential losses, adding to overall profit. And the bank recorded gains in all its major divisions, showing strength in both consumer and corporate banking operations.

For the full year, JPMorgan reported earnings of $21.3 billion, compared with $19 billion in 2011. Revenue in 2012, at $97 billion, was essentially flat.

Despite the rocky market conditions and uncertainty related to the budget impasse, the corporate-focused businesses reported nice gains. Investment banking fees jumped 54 percent, to $1.7 billion, with improvements in debt and equity underwriting. Revenue in the commercial banking group hit $1.75 billion, after the 10th consecutive quarter of loan growth.

Income in JPMorgan’s asset management group rose 60 percent, to $483 million. JPMorgan has been ramping up the business, as riskier ventures get crimped by new regulation.

Like other big banks, JPMorgan’s earnings have been bolstered by a surge in mortgage lending, driven in part by a series of federal programs that have helped drive down interest rates. As homeowners seize on the low rates, JPMorgan is experiencing a flurry of refinancing applications. The bank is also making bigger gains when those loans are packaged and eventually sold to big investors.

Over all, the mortgage banking group posted profit of $418 million for the fourth quarter, compared with a loss of $269 million in the period a year earlier.

But those low interest rates also present a challenge for JPMorgan, which is dealing with glut of deposits. The bank reported average total deposits of $404 billion, up 10 percent from the fourth quarter of 2011.

As deposits pile up, the situation is weighing on profitability. The margin on deposits continued to shrink, dropping to 2.44 percent from 2.76 percent the period a year earlier.

The bank also continues to face a slew of legal problems.

In the last year, JPMorgan has worked to move beyond some of the issues stemming from the mortgage crisis. Along with competitors, JPMorgan reached deals with federal regulators over claims that its foreclosures practices might have led to wrongful eviction of homeowners. JPMorgan and other banks agreed this month to a $8.5 billion settlement with the Comptroller of the Currency and the Federal Reserve, which ends a costly and flawed review of loans in foreclosure ordered up by the regulators in 2011. The bank spent roughly $700 million this quarter on costs associated with the review.

Still, the bank is dealing with other cases that could prove costly. New York’s attorney general, Eric T. Schneiderman, filed a lawsuit against the bank related to Bear Stearns, the troubled unit that JPMorgan bought in the depths of the financial crisis. In the suit, filed in October, the attorney general claimed JPMorgan had defrauded investors who bought securities created from shoddy mortgages.

JPMorgan was also hit with two enforcement actions this week, the first formal sanctions from federal banking regulators over the bank’s multibillion-dollar trading loss. Regulators from the Federal Reserve and the Comptroller of the Currency identified flaws throughout the bank, citing failures in its ability to assess how big losses might swell as a result of the complex trades. In addition, regulators found that bank executives did not adequately inform board members about the potential losses.

Article source: http://dealbook.nytimes.com/2013/01/16/jpmorgan-4th-quarter-profit-jumps-53-to-5-7-billion/?partner=rss&emc=rss

Bucks Blog: The Tax Code and the Very Rich

Almost anyone who receives a paycheck will pay higher taxes this year. But as Paul Sullivan writes in his Wealth Matters column this week, the very wealthiest Americans — those worth hundreds of millions or more — usually don’t get paychecks. These people, generally partners in private equity firms or hedge fund managers, earn much of their money as a share of their funds’ earnings. And those earnings are taxed at a lower rate than ordinary income.

So while tax economists say the tax code may now be the most progressive in a generation, the richest of the rich often have the most options for deferring taxes or sheltering some of their income.

Have you figured out yet how you will be affected by new tax rules? And what changes would you have made to the tax code?

Article source: http://bucks.blogs.nytimes.com/2013/01/11/the-tax-code-and-the-very-rich/?partner=rss&emc=rss

Sears to Close 100 to 120 Kmart, Sears Stores

NEW YORK (AP) — Sears Holdings Corp. plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.

The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores.

In an internal memo Tuesday to employees, CEO and President Lou D’Ambrosio said that the retailer had not “generated the results we were seeking during the holiday.”

Sears Holdings Corp. said it has yet to determine which stores will close but said it will post on http://www.searsmedia.com when a final list is compiled. Sears would not discuss how many, if any, jobs would be cut.

The company has more than 4,000 stores in the U.S. and Canada. Its stock dropped $8.67, or 18.9 percent, to $37.18 in morning trading. The shares dipped to their lowest point in more than three years at $36.51 during the first few minutes of trading.

The company’s revenue at stores open at least a year fell 5.2 percent to date for the quarter at both Sears and Kmart, the company said Tuesday. That includes the critical holiday shopping period.

Sears Holdings said the declining sales, ongoing pressure on profit margins and rising expenses pulled its adjusted earnings lower. The company predicts fourth-quarter adjusted earnings will be less than half the $933 million it reporter for the same quarter last year.

Sears Holdings also anticipates a non-cash charge of $1.6 billion to $1.8 billion in the quarter to write off the value of carried-over tax deductions it now doesn’t expect to be profitable enough to use.

Sears said it will no longer prop up “marginally performing” stores in hopes of improving their performance and will now concentrate on cash-generating stores.

“These actions will better enable us to focus our investments on serving our customers,” D’Ambrosio said.

The weaker-than-expected performance reflects what analysts say is a deteriorating outlook for the retailer.

The results point to “deepening problems at this struggling chain and renewed worries about Sears survivability,” said Gary Balter, an analyst at Credit Suisse. “The extent of the weakness may be larger than expected but the reasons behind it are not. It begins and some would argue ends with Sears’ reluctance to invest in stores and service.”

Balter also said Sears’ weakening performance may lead its vendors to start to worry about their exposure.

The company has seen rival department stores like Macy’s Inc. and discounters like Target Corp. continue to steal customers. It’s also contending with a stronger Wal-Mart Stores Inc., the world’s largest retailer, which has hammered hard its low-price message and brought back services like layaway, which allows financially stressed shoppers to finance their holiday purchases by paying a little at a time.

The tough economy hasn’t helped, either. Middle-income shoppers, the company’s core customers, have seen their wages fail to keep up with higher costs for household basics like food.

But the big problem, analysts say, is Sears hasn’t invested in remodeling, leaving its stores uninviting.

“There’s no reason to go to Sears,” said New York-based independent retail analyst Brian Sozzi, “It offers a depressing shopping experience and uncompetitive prices.”

Sears Holdings Corp., based in Hoffman Estates, Ill., said that the store closings will generate $140 to $170 million in cash from inventory sales. The retailer expects the sale or sublease of real estate holdings to add more cash.

Sears Holdings appeared to stumble early in the holiday season, as it opened its Sears, Roebuck and Co. stores at 4 a.m. on Black Friday, the day after Thanksgiving. Rivals including Best Buy Co., Wal-Mart Stores Inc. and Toys R Us opened as early as Thanksgiving night. Sears stores had opened on Thanksgiving Day in 2010. Kmart has been opening on Thanksgiving for years.

A hint that trouble might be brewing came in mid-December when Sears Holdings unexpectedly announced that 260 of its Sears, Roebuck and Co. locations would stay open until midnight through Dec. 23.

Kmart’s 4.4 percent decline in revenue at stores open at least a year was blamed on diminished layaways and a drop in clothing and consumer electronics sales. Part of Kmart’s layaway softness likely stemmed from competitive pressure. Wal-Mart had said that its holiday layaway business had been popular. Toys R Us expanded its layaway services to include more items. Kmart’s grocery sales climbed during the period.

Sears cited lackluster consumer electronics and home appliance sales for its 6 percent dropoff. Sears’ clothing sales were flat. Sales of Lands’ End products at Sears stores rose in the mid-single digits.

Sears Holdings said it also plans to lower its fixed costs by $100 million to $200 million and trim its 2012 peak domestic inventory by $300 million from 2011’s $10.2 billion at the third quarter’s end.

D’Ambrosio acknowledged in his internal memo that criticism over Sears Holdings’ performance was likely to come, but that the company was prepared for the days ahead.

“We will bounce back and become stronger than ever,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=cf51bb386889754a3e05de177b6041ae

Deere’s Profit Rises 46%

The quarterly results beat analysts’ expectations, and Deere shares rose nearly 4 percent on a down day on Wall Street.

The company said Wednesday that equipment sales were up 20 percent in the quarter. That included 14 percent sales growth in the United States and Canada, and 31 percent growth in the rest of the world outside those two countries.

The sales growth helped Deere generate net income of $670 million, or $1.62 a share, for the three months ended Oct. 31, up from $457 million, or $1.07 a share, a year ago.

Revenue grew 20 percent to $8.6 billion, from $7.2 billion a year ago. Both sales volume and equipment prices increased.

Analysts surveyed by FactSet expected earnings of $1.43 a share on revenue of $7.91 billion.

Deere said equipment sales would increase about 15 percent in the 2012 fiscal year and profit would grow to $3.2 billion, from $2.8 billion in the 2011 fiscal year.

The earnings statement from Deere, the world’s largest maker of agricultural equipment, offers an indication of how well farmers worldwide are doing. Deere said it expected farmers to have another good year in 2012 because the demand for agricultural commodities remained strong.

Deere said it projected that net American farm income would decline slightly to roughly $109.2 billion in 2012, from the estimated $115.7 billion in 2011.

To help meet the growing demand, Deere announced plans in 2011 to build new manufacturing plants in Brazil, China and India.

For Deere’s 2011 fiscal year, the company reported net income of $2.8 billion, or $6.63 a share. That is higher than the previous year’s $1.87 billion.

Its shares rose $2.80 to $74.72 on Wednesday.


Article source: http://feeds.nytimes.com/click.phdo?i=5d66320a3d506f8d4f904a7d2bd5540e

Higher Fares Bolster Delta’s Earnings by 51%

The company reported that its earnings rose 51 percent, despite higher fuel costs, in large part because of higher fares. Richard H. Anderson, the chief executive, said Delta was determined to price fares high enough to cover fuel costs, which rose by $1 billion in the third quarter compared with a year ago.

All the big airlines except Southwest raised fares by up to $5 each way on Monday, for the second time in a week. With Southwest sitting out the increase, it may not stick. But the effort shows how aggressively airlines are jumping at any opportunity to raise fares.

Delta executives said they expected high fuel prices and an uncertain economy to continue into next year.

In the past, airlines struggled to make money in a weak economy or when fuel prices rose. Now, they appear committed to raising prices or cutting back on flying to stay profitable.

Delta cut flights by 1 percent in the most recent quarter, and it plans to cut as much as 5 percent through the rest of the year and as much as 3 percent next year. Traffic fell slightly, although Delta said business travel, which generates more profit, remained strong.

The result was net income of $549 million, or 65 cents a share, up from $363 million, or 43 cents a share, compared with a year earlier. Revenue rose 10 percent, to $9.8 billion. If not for losses from fuel hedging and other items, Delta would have earned 91 cents a share. That was 3 cents less than expected by analysts surveyed by FactSet.

Delta said it expected to be profitable in the fourth quarter as well. Its shares fell 46 cents on Tuesday, or 5.2 percent, to $8.44. They are down 33 percent for the year.

Article source: http://feeds.nytimes.com/click.phdo?i=ee43998b8b223f956ea8b3e87bbef241

Deal for Pharmacy Inventory System

Rowa makes high-speed, automated medicine management systems that store and retrieve prepackaged pharmaceutical inventories for retail and hospital pharmacies, CareFusion said on Tuesday. The systems are intended to reduce costs and improve work flow.

CareFusion said the acquisition of Rowa, with more than 3,500 systems installed in 30 countries, would complement its Pyxis portfolio of products.

The deal is expected to be neutral to adjusted earnings in the first year and accretive thereafter, CareFusion said.

Stock in CareFusion, which is based in San Diego, rose 9 cents, to $27.76 a share.

CareFusion, which has more than 14,000 employees worldwide, develops technologies including infusion pumps, automated dispensing and patient identification systems, and ventilators and respiratory products.

Rowa, with more than 300 employees, is headquartered in Kelberg, Germany. It has operations in Italy, the Netherlands, Denmark and Sweden.

Article source: http://feeds.nytimes.com/click.phdo?i=654a086829a63ba8ce4c9d8c20baedff

Wal-Mart Frets as U.S. Shoppers Buy Food and Little Else

The poorer customers who shop at the nation’s biggest retailers are still on tight budgets. They wait inside the store at the end of each month with full shopping carts until the clock strikes midnight. Then, their electronic-benefit transfers from the government go through, and they pay for their groceries and other staples. They buy items in small packages, which cost less than big ones.

And while they are spending more on food at Wal-Mart than they did a year ago, they are buying less in most other categories.

Same-store sales, or sales at stores open at least a year, fell by 1.1 percent in the quarter in the United States, the company said on Tuesday. It was the eight quarterly drop in a row, one of the worst streaks in Wal-Mart’s history.

Over all, however, earnings beat analyst expectations, helped by sales strength in international stores and at its Sam’s Club unit. The company said its quarterly profit was $3.4 billion, or 97 cents a share, up from $3.3 billion, or 87 cents a share, a year earlier. Wal-Mart had forecast a profit of 91 to 96 cents a share for the quarter, and analysts expected a 95-cent-a-share profit on average.

Sales in the period, which ended April 30 and was the first quarter of Wal-Mart’s fiscal year, rose 4.4 percent, to $103.4 billion.

Low prices on groceries during an inflationary period helped sales, Wal-Mart executives said. Same-store sales in grocery were up in the single digits for the quarter in the United States. Wal-Mart said food prices rose about 1 percent in the quarter as a result of inflation.

Yet Wal-Mart had some trouble getting shoppers into the rest of the store.

In apparel, for instance. “We’re simply not converting enough of our grocery customers to shop apparel,” said William S. Simon, the president and chief executive of Wal-Mart’s United States division, in a conference call with investors.

After flirting with fashion-forward items, Wal-Mart decided to focus on basic clothes, but company executives said they did not perform well.

“It’s something that we’ve stumbled with over the last several quarters and we’re not happy with,” Charles M. Holley Jr., the chief financial officer, said in a conference call with reporters. “It does start with basics, and for us to be able to sell anything that’s fashionable at all, we really have to get basics down first.”

While “we had a fairly good quarter” with items like T-shirts and underwear, he said, “where we’re still not executing is in the kids’ and the women’s business.”

In other departments, Wal-Mart is piling merchandise in its aisles to signal value, and is stocking items in smaller packages that someone on a budget can afford, in an effort to take market share from dollar stores.

“You see customers that are running out of money at the end of the month going to the smaller pack sizes — they are not necessarily a better value,” Mr. Holley said, but “we have been continuing to work on that, so we have the smaller pack sizes.”

Wal-Mart said this strategy had been successful with products like air fresheners and fishing products, so far. “These modular changes focused on bringing back assortment, ensuring opening price points were available in all categories, and increased the holding power on the shelf,” Mr. Simon said.

Same-store sales were all in negative territory in categories like entertainment, including electronics; hard lines, which are items like hardware and crafts; apparel; and home.

In the United States, Wal-Mart has been making a number of changes to revive same-store sales. Michael T. Duke, chief executive of Wal-Mart, said on Tuesday that “comp sales growth remains the greatest priority for me and the entire Wal-Mart U.S. team.”

Wal-Mart said it would continue with its expansion plans in the United States, particularly with smaller stores. Its grocery-only stores, which are called Neighborhood Markets and are about one-third the size of a typical Wal-Mart, performed well in the quarter. There, same-store sales were up 4 percent as visits by customers rose. Wal-Mart said that because of those results, it would open another 30 to 40 Neighborhood Markets this year.

The company will also open 15 to 20 Wal-Mart Express stores by the end of the year in urban and rural areas. At about 15,000 square feet, they will sell groceries “along with key general merchandise categories,” Mr. Simon said. They will also function as a depot of sorts for Walmart.com’s items. Customers can order something from the extended online inventory, and pick it up at the store.

Analysts noted that drops in Wal-Mart’s same-store sales were at least easing.

“Top-line results came in somewhat ahead of expectations, reflecting a more moderate decline in U.S. comps,” Colin McGranahan, an analyst at Sanford C. Bernstein Company, wrote in a note to clients.

Wal-Mart said it expected same-store sales to range from down 1 percent to up 1 percent in its second quarter.

Separately, Home Depot also reported earnings on Tuesday. Although its profit beat Wall Street expectations, its same-store sales in the United States declined because of the harsh winter, Craig A. Menear, its merchandising chief, said in a call with investors.

Home Depot’s revenue was $16.82 billion, down from $16.86 billion in the same period a year earlier. But because of aggressive cost-cutting, its net income was up 12 percent to $812 million, or 50 cents a share, versus analyst expectations of 49 cents a share.

“It’s all weather,” Home Depot’s chief financial officer, Carol B. Tomé, said in an interview. “It’s not an assortment issue. It’s just when it’s cold and snowing and raining, people aren’t going to do the outdoor products.”

Shares of Wal-Mart fell 52 cents, or about 1 percent, to $55.54 a share. Shares of Home Depot rose 1.14 percent, or 42 cents, to $37.40.

Article source: http://feeds.nytimes.com/click.phdo?i=fb73e15f411d72df449ccafa06900416

Earnings Rise for Procter and Colgate

Procter Gamble lowered the high end of its profit forecast for the year after posting a profit that fell a penny short of analysts’ average estimate. Colgate said that rising costs hurt its profit margins in its last quarter but that the income still met forecasts.

Procter Gamble, the world’s largest maker of household goods, now expects its costs to rise about three times as much at it had at the start of the year, with increases in diesel, resin and other materials, the chief financial officer, Jon R. Moeller, said.

Procter has implemented or announced increases across brands representing about 50 percent of United States sales but is not raising prices as much as it did in 2008, the chief executive, Robert A. McDonald, said.

Procter Gamble earned $2.87 billion, or 96 cents a share, up from $2.59 billion, or 83 cents a share, a year earlier. Revenue in the period, which ended March 31 and was the third quarter of the company’s fiscal year, rose to $20.23 billion from $19.18 billion.

Stock in Procter, which is based in Cincinnati, rose 48 cents, to $64.50 a share.

Colgate, which was reporting results for its first quarter, said it earned $576 million, or $1.16 a share, up from $3.57 million, or 69 cents a share, a year earlier. Sales rose to $3.99 billion from $3.83 billion.

Excluding one-time items from the year-earlier period, its net income was down 8 percent.

The chief executive, Ian M. Cook, said Colgate raised prices in many categories and in all its markets, and will keep doing so, but he declined to provide details.

Stock in Colgate, which is based in New York, rose $1.91, to $82.97 a share.

Article source: http://feeds.nytimes.com/click.phdo?i=80cbec7ca94aa75f6c6c1ab755baa6c2