JPMorgan Chase still has more than $30 billion in credit reserves.
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JPMorgan Chase’s fourth-quarter results came in better than expected, but it wasn’t enough to lift the stock. Shares were lower in early trading.
The bank posted profits of $12.1 billion, or $3.79 per share, on revenue of $30.2 billion. Analysts were expecting the bank to post earnings of $2.62 per share on revenue of $28.7 billion, according to FactSet. JPMorgan’s (ticker: JPM) fourth-quarter figures also topped those from the same quarter a year earlier, when earnings came in at $2.57 per share with $29.2 billion in revenue.
JPMorgan attributed the surprisingly strong results in part to a $2.9 billion release of credit reserves—funds set aside to cover losses on potential bad loans—into earnings. That boosted earnings per share by 72 cents. But even without the reserve release, the bank’s results would have topped estimates.
JPMorgan Chairman and Chief Executive James Dimon credited the bank for delivering strong results in a difficult year.
“While we reported record profits of $12.1 billion, we do not consider the reserve takedown of $2.9 billion to represent core or recurring profits – essentially reserve calculations, while done extremely diligently and carefully, now involve multiple, multi-year hypothetical probability-adjusted scenarios, which may or may not occur and which can be expected to introduce quarterly volatility in our reserves,” Dimon said.
The stock was down 2.2% at $138.07 ahead of the open.
The bank said that $2 billion of the reserve release was due to an improvement in the macroeconomic outlook. There was also a $900 million release in the consumer bank due to improved expectations for home prices and because loans were paid off without new ones being added.
JPMorgan still has more than $30 billion in credit reserves, reflecting “significant near-term economic uncertainty,” Dimon said.
Banks’ results were harmed in 2020 as they set aside billions in reserves for expected credit losses due to the economic impact of the coronavirus pandemic. While economic conditions are still challenging, many bank executives have acknowledged that the economic reality has not been as bad as feared.
JPMorgan also saw year-over-year improvements in its corporate and investment bank. Revenue for the division came in at $11.3 billion, a 17% increase from the prior year’s fourth quarter. Investment banking revenue was up by 16% and trading revenue increased by 18%. Trading had been a bright spot for the big banks in 2020 thanks to volatile markets. Fourth-quarter revenue for fixed income, currencies and credit trading climbed 15%, while equities trading increased 32%.
The bank scheduled a call with analysts for 8:30am Eastern time..
Citigroup (C) and Wells Fargo (WFC) are also reporting earnings on Friday. Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) will report fourth-quarter results next week.
Write to Carleton English at [email protected]
