JPMorgan Chase & Co reported a much better-than- expected jump in fourth-quarter profit on Friday as it released some of the cash it had built up against coronavirus-driven loan losses and benefited from continued strength in its trading and investment banking units.
For most of last year, Main Street lenders grappled with the economic fallout of the pandemic and set aside tens of billions of dollars to cover loans that could go bust as businesses shuttered and unemployment surged.
The pandemic also caused a plunge in short and long-term interest rates that hurt interest income, but the Wall Street arms of the biggest banks benefited from volatility in global financial markets, a rush for stock market listings and emergency corporate fundraising.
JPMorgan’s net income rose 42% to $12.1 billion, or $3.79 per share, in the quarter ended Dec. 31, from $8.5 billion, or $2.57 per share, a year earlier. Revenue rose 3% to $30.2 billion. During the quarter, it released credit reserves of $2.9 billion, adding 72 cents to its earnings per share.
Excluding the reserves, the bank reported net income of $9.9 billion, or $3.07 per share, which was well ahead of the average Wall Street estimate of $2.62 per share, according to Refinitiv.
Investment banking revenue surged 37% to $2.5 billion, driven by higher advisory fees across all its products.
Looking forward, JPMorgan said in a slide presentation to analysts that it expects its non-interest expenses to go up in 2021 to about $68 billion from $65.5 billion, as it makes another $1.5 billion of investments in its business and spends another $900 million on its technology.
The spending plan continues JPMorgan’s practice of using its financial heft as the biggest U.S. bank to expand its business and take market share from other lenders as it fights to hold off non-bank competitors.
NOTE OF CAUTION
Still, JPMorgan Chief Executive Jamie Dimon cautioned that the reserve takedown did not represent “core or recurring profits”.
“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion … will allow us to withstand an economic environment far worse than the current base forecasts by most economists,” Dimon said.
Near-zero Federal Reserve interest rates led to a record reduction in net interest margins in 2020 – the difference between what banks charge for loans and what they pay out to depositors.
JPMorgan’s net interest income fell 7% to $13.4 billion.
Interest metrics are closely watched by investors to show how much central-bank policies are affecting income, and how well banks are managing their balance sheets.
The bank’s other reporting lines held up well during the quarter. Three of JPMorgan’s four operating units reported higher revenue, with the consumer & community banking unit recording an 8% decline.
Trading revenue surged as the bank benefited from volatility in financial markets with investors reassessing their portfolios at the end of the year.
Analysts are expecting a rebound in banks’ profits in 2021, as a number them start taking down some of their reserve buffers.
Citigroup on Friday reported a 7% decline in fourth-quarter profit on Friday but beat Wall Street expectations, while Wells Fargo posted a higher profit as stabilizing credit costs helped offset the hit from low-interest rates.
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