JPMorgan posts record annual profit as bond trading rebounds

January 15, 2020 07:56
JPMorgan Chase & Co. said its outlook is constructive, underpinned by the strength of the US consumer. Photo: Bloomberg

JPMorgan Chase & Co. posted its biggest-ever annual profit as its bond trading business bounced back in the last three months of the year, Reuters reports.

Revenue rose at all but one of JPMorgan’s four main businesses, beating analysts expectations and sending the bank’s shares 2.2 percent higher. Executives were positive and clear-eyed about the outlook for 2020, as well.

“Our outlook heading into 2020 is constructive, underpinned by the strength of the US consumer,” JPMorgan chief financial officer Jennifer Piepszak said on Tuesday on a call with analysts. “In spite of expected slower global growth and the backdrop of geopolitical uncertainties, we remain well-positioned.”

Big bank rivals Citigroup and Wells Fargo also reported earnings on Tuesday. Citi beat profit estimates thanks to a jump in trading revenue and strong credit card sales, while Wells Fargo’s profits slumped on a rise in legal reserves.

At JPMorgan, the only business to post a decline was commercial banking, which reported revenues fell 3 percent on lower net interest income and higher expenses due to investments in the business.

The bank’s bond trading revenue jumped 86 percent compared to a year earlier when financial markets were walloped industry-wide by a sell-off driven by trade and global growth concerns. Revenue from equity markets rose 15 percent to US$1.5 billion.

Piepszak conceded that its returns in bond-trading benefited from “a favorable comparison against a challenging fourth quarter last year”, but said there were examples of strength across the business.

Debt underwriting fees in the investment bank rose 11 percent year over year, in part thanks to the increased activity in bond issuance which made for competitive pricing conditions, she said.

Overall revenue at JPMorgan’s corporate and investment banking unit, which houses its trading and underwriting businesses, surged 31 percent to US$9.47 billion.

The consumer and community banking business, which accounts for almost half of the bank’s revenues, reported a US$14 billion, or 3  percent, rise over last year.

Chase credit card customers used their plastic to the bank’s benefit this holiday season. The bank reported credit card, merchant services and auto revenue surged US$6.3 billion or 9 percent, with credit card loans up 8 percent.

But revenues were under pressure this quarter from lower deposit margins because low interest rates meant that the bank earned less on deposits it loaned out. Home lending revenue was also down 5 percent to US$1.3 billion.

Total loans, excluding home lending, rose 3 percent in the quarter. Home loans were down 17 percent.

Deposits flowed into the consumer bank in the fourth quarter, helping to offset a decline in loans, as Chase opened around 100 new bank branches 2019 in many new cities where it previously had not been located. Deposits grew 5 percent compared to a year ago.

Chief executive Jamie Dimon said the US consumer continued to be in a strong position. “Their wages are up, their assets are up, their investments are up, their home values are up,” he said on a call with reporters.

The bank's net income rose to US$8.52 billion, or US$2.57 per share, in the quarter ended Dec. 31, from US$7.07 billion, or US$1.98 per share, a year earlier. Net revenue rose 9 percent to US$29.21 billion. 

Analysts, on average, had expected the bank to earn US$2.35 per share on revenue of US$27.94 billion, according to Refinitiv data.

Net interest income fell 2 percent to US$14.3 billion.

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