JPMorgan beats profit estimates as dealmaking boom softens trading decline

JPMorgan Chase & Co reported a 14 per cent fall in fourth-quarter profit on Friday due to a slowdown in its trading arm, but a stellar performance at its investment banking unit helped the lender sail past analysts’ estimates.

The largest bank in the US, whose fortunes are often seen as a barometer of the health of the US economy, saw trading revenue – a big driver of earnings in 2020 – fall 13 per cent, while investment banking revenue surged 28 per cent thanks to a bumper year for deals.

Loan growth, the bank’s core business, was also up 6 per cent, helped by a rebounding economy, while net interest income from lending and investments in Treasury securities was up 3 per cent.

JPMorgan’s shares slipped nearly 5 per in early trading on Friday as investors worried about higher expenses. During the quarter, non-interest expense jumped 11 per cent to nearly $18 billion, driven largely by higher staff compensation.

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Over the past year, large US lenders benefited from higher consumer spending and a surge in deal-making driven by loose monetary policy, while their trading arms gained from exceptional volatility in financial markets.

However, soaring inflation, a potential Omicron-induced economic slowdown and trading revenues returning to normal levels are set to challenge the banking industry’s growth in the coming months.

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

Healthy

Chief financial officer Jeremy Barnum said JPMorgan expects a "modest normalization" in investment banking revenue in 2022, but added that the overall deals pipeline remains healthy.

Overall, the lender posted a profit of $10.4 billion, or $3.33 per share, in the quarter to December 31st. Analysts had estimated $3.01 per share.

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

For the full-year, it posted a record profit and revenue, helped by take-downs of funds it had set side during the height of the pandemic in anticipation of an expected wave of loan defaults.

Citigroup on Friday reported a 26 per cent drop in fourth-quarter profit, as it took a hit from higher expenses and weakness at its consumer banking unit, sending its shares tumbling 3.5 per cent before the bell.

‘Strategy refresh’

Profit fell to $3.2 billion, or $1.46 per share, in the quarter to December 31st, from $4.3 billion, or $1.92 per share, a year earlier.

The lender is also shedding the last of its consumer businesses outside of the United States as part of a "strategy refresh" started by chief executive Jane Fraser, who took the helm in March.

Wells Fargo & Co, which also reported on Friday, reported an 86 per cent jump in fourth-quarter profit, propped up by one-time gains. – Reuters