Fourth quarter profits beat expectations as the largest US bank benefited from buoyant capital markets and increased lending, although business activity slowed.
The banking center posted profits of $ 10.4 billion in the last three months of 2021 on revenue of $ 30.3 billion. This brought earnings per share to $ 3.33. Wall Street expected profits of $ 9.1 billion, or $ 3.01 per share, on revenues of $ 29.8 billion, according to analysts polled by FactSet.
“JPMorganChase reported strong results across all of our businesses, benefiting from strong capital markets activity and a resumption of lending activity as average company-wide lending increased 6%.” Jamie Dimon, the bank’s chief executive officer, said in a statement.
Revenues for the group’s investment banking division were remarkable, up 28% from the fourth quarter of 2020 to $ 3.2 billion, thanks to higher fees. “Unprecedented” merger and acquisition (M&A) activity and strong performance from initial public offerings (IPOs) added another boost.
A slowdown in commercial activity has tarnished some of the luster of the publication. Market revenues fell 11% to $ 5.3 billion, down after a record quarter last year amid a tough business environment for the bank, lower sales of derivatives and a 2% drop in stock markets.
JPMorgan shares (ticker: JPM) fell more than 3% in pre-market trading after the financial results were released. The stock was up about 1% before the earnings release. While earnings have been strong, the lack of widespread breakouts and declining trading income could weigh on the stock after the recent outperformance.
A stock decline after earnings is not unusual: JPMorgan stock has fallen on every earnings day for the past five quarters. These consistent declines have come even as the earnings revealed on each of these days have exceeded Wall Street’s expectations for the bank’s performance.
Latest results bring net income for the full year to $ 48.3 billion, from $ 29.1 billion in 2020, but quarterly figures mark a decline from same time of year former. JPMorgan’s fourth-quarter 2021 profits were 14% lower than in 2020, when the bank posted profit of $ 12.1 billion, or $ 3.79 per share.
The decline in profits in the last quarter compared to a year ago can, in part, be attributed to a lower release of loan loss reserves in the last quarter.
As Covid-19 swept the world in 2020, banks set aside billions in reserves for credit losses that were to result from the economic fallout from the pandemic. When the economic reality was not as bad as many feared, banks began to release some of these reserves in 2021, increasing their profits.
JPMorgan injected $ 2.9 billion of credit reserves into earnings in the fourth quarter of 2020 and only $ 1.8 billion in the fourth quarter of 2021. Reserve releases are also expected to continue to slow.
However, net interest income was higher during the quarter and above expectations. It is a fundamental measure of bank profitability, marking the difference between interest income and expenses. Wall Street was looking for quarterly net interest income of $ 13.1 billion; JPMorgan shipped $ 13.7 billion, up 3% from a year ago.
Big bank stocks collapsed amid tighter monetary policy and consensus on a positive outlook for the economy. JPMorgan stock has climbed almost 7% in the last month alone, topping a 1.1% rise overall
“The economy continues to perform well despite the headwinds associated with the Omicron variant, inflation and supply chain bottlenecks,” said Dimon. “We remain optimistic about US economic growth as the business climate is optimistic and consumers benefit from the growth in jobs and wages.”
The Federal Reserve agrees with Dimon about a strong US economy and is ending the pandemic-era stimulus package and working to normalize financial conditions, including raising interest rates. Tightening Fed policy and rising inflation have driven up bond yields and steepening the yield curve, which refers to a greater difference between short-term and long-term bond yields.
Higher yields or interest rates are good for banks because it gives them bigger margins – and therefore bigger profits – when they lend money. Banks charge more for loans than they get for their deposits, so margins are under pressure in an ultra-low rate environment.
Lending growth was also at the center of JPMorgan’s post, with lending increasing across the group, even as average lending at consumer and community banks fell 1%. Businesses and households have borrowed less than usual over the past year as the pandemic has left plenty of cash amid government stimulus and spending cuts.
Write to Jack Denton at [email protected]