JPMorgan beats earnings estimates as deal boom dampens trade decline

A view of the exterior of the JP Morgan Chase & Co. headquarters in New York May 20, 2015. REUTERS/Mike Segar

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Jan 14 (Reuters) – JPMorgan Chase & Co (JPM.N) on Friday reported a 14% drop in fourth-quarter profit due to a slowdown in its trading arm, but a stellar performance from its financial banking unit investment helped the lender pass analysts’ estimates.

The nation’s largest bank, whose fortunes are often seen as a barometer of the health of the US economy, saw trading revenue – a major profit driver in 2020 – fall 13%, while revenue from investment banking jumped 28% on a bumper year for deals.

Loan growth, the bank’s core business, also increased by 6% amid an economic recovery, while net interest income on loans and investments in Treasury securities increased by 3%.

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Shares of JPMorgan, up 6% this year, slipped 3% in trading before the opening bell on Friday as investors worried about rising spending. During the quarter, non-interest expense jumped 11% to nearly $18 billion, largely due to higher employee compensation.

Over the past year, major U.S. lenders have benefited from higher consumer spending and increased transactions thanks to accommodative monetary policy, while their trading arms have benefited from exceptional financial market volatility. .

However, soaring inflation, a potential Omicron-induced economic slowdown and a return to normal levels of trading income are expected to challenge growth in the banking sector in the months ahead.

“The economy continues to do well despite headwinds from the Omicron variant, inflation and supply chain bottlenecks,” JPMorgan chief executive Jamie Dimon said.

“We remain bullish on U.S. economic growth as the business climate is upbeat and consumers are benefiting from job and wage growth.”

The trade deficit in the fourth quarter was cushioned by another strong performance from its investment bank, as global M&A activity hit all-time highs in 2021 and pushed investment banking fees to an all-time high in the first semester.

Much of the boom was driven by big financial sponsors and cash-strapped companies that went on a trading spree amid record highs in their stocks.

During the quarter, JPMorgan maintained its position as the world’s second-largest M&A advisory provider after Goldman Sachs, according to Refinitiv. The league tables rank financial services firms by the amount of merger and acquisition fees they generate.

RECORD BENEFITS

Overall, the lender posted a profit of $10.4 billion, or $3.33 per share, in the quarter ended Dec. 31. Analysts had estimated earnings of $3.01 per share, according to Refinitiv data.

Revenue was nearly flat at $30.3 billion. The bank’s earnings were also supported by reserve releases of $1.8 billion.

For the year as a whole, it posted record profits and revenues, largely helped by reserve drawdowns.

During the quarter, JPMorgan withdrew more funds than it had set aside at the height of the pandemic in anticipation of an expected wave of defaults.

But that didn’t happen, thanks to consumer-friendly monetary policy and government stimulus that boosted consumer spending, allowing banks to release billions from their loan loss reserve.

Fixed income trading revenue fell 16% to $3.3 billion, while equity market revenue fell 2% to $2 billion.

Its personal and commercial banking unit reported revenue growth of 7%, driven by higher asset management fees and growth in the number of customer transactions. Like other major lenders, JPMorgan should benefit from further interest rate hikes over the next few quarters.

Citigroup (CN) will release its results later Friday. Wells Fargo & Co on Friday reported an 86% increase in fourth-quarter profit, buoyed by gains from the sale of its trust and asset management businesses. Read more

Goldman Sachs (GS.N), Wall Street’s premier investment bank, will report results on Tuesday, while Morgan Stanley and Bank of America will close the earnings season on Wednesday.

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Reporting by Anirban Sen in Bengaluru and Matt Scuffham in New York; Editing by Saumyadeb Chakrabarty

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