JPMorgan beats earnings estimates as deal boom dampens trade decline

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A view of the exterior of JP Morgan Chase & Co. headquarters in New York May 20, 2015. REUTERS/Mike Segar

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Jan 14 (Reuters) – JPMorgan Chase & Co (JPM.N) on Friday reported a 14% drop in fourth-quarter profit due to a slowdown in its trading arm, but a stellar performance by its banking unit. investment helped the lender pass analysts’ estimates.

The nation’s largest bank, whose fortunes are often seen as a barometer of the health of the US economy, saw trading revenue – a major profit driver in 2020 – fall 13%, while revenue from investment banking jumped 28% on a bumper year for deals.

Growth in loans, the bank’s core business, also increased by 6%, helped by the rebound in the economy, while net interest income on loans and investments in Treasury securities increased by 3 %.

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Shares of JPMorgan slid nearly 5% in trading before the opening bell on Friday as investors worried about rising spending. During the quarter, non-interest expense jumped 11% to nearly $18 billion, largely due to higher employee compensation.

Over the past year, major U.S. lenders have benefited from higher consumer spending and increased transactions thanks to accommodative monetary policy, while their trading arms have profited from exceptional financial market volatility. .

However, soaring inflation, a potential Omicron-induced economic slowdown and a return to normal levels of trading income are expected to challenge growth in the banking sector in the months ahead.

“The economy continues to do well despite headwinds from the Omicron variant, inflation and supply chain bottlenecks,” JPMorgan chief executive Jamie Dimon said.

The trade deficit in the fourth quarter was cushioned by another strong performance from its investment bank, as global M&A activity hit all-time highs in 2021 and pushed investment banking fees to an all-time high in the first semester.

Much of the boom was driven by large financial sponsors and high-liquidity companies which embarked on a trading frenzy, encouraged by record increases in their shares.

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

Chief Financial Officer Jeremy Barnum said JPMorgan expects “modest normalization” in investment banking revenue in 2022, but added that the overall deal pipeline remains healthy.

Regarding the slowdown in trading, Barnum said the bank expects some normalization this year, but still expects revenue to remain above 2019 levels.

Overall, the lender posted a profit of $10.4 billion, or $3.33 per share, in the quarter ended Dec. 31. Analysts had estimated $3.01 per share, according to Refinitiv data.

WAGE INFLATION

JPMorgan forecasts forward spending of $77 billion for 2022, which is higher than widely anticipated.

“It is true that labor markets are tight, there is a bit of labor inflation and it is important for us to attract and retain top talent and pay competitively for performance” , Barnum told reporters on a post-earnings call.

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

For the full year, it posted record profit and revenue, helped by withdrawals of funds it had set aside at the height of the pandemic in anticipation of an expected wave of defaults.

But thanks to consumer-friendly monetary policy and government stimulus that boosted consumer spending, banks were able to release billions from their loan loss reserve.

Fixed income trading revenue fell 16% to $3.3 billion, while equity market revenue fell 2% to $2 billion.

Its personal and commercial banking unit reported revenue growth of 7%, driven by higher asset management fees and growth in the number of customer transactions. Like other major lenders, JPMorgan should benefit from further interest rate hikes over the next few quarters.

Citigroup (CN) on Friday reported a 26% decline in fourth-quarter earnings, while Wells Fargo & Co reported an 86% increase in fourth-quarter earnings, buoyed by one-time gains. Read more

Goldman Sachs (GS.N) will report results on Tuesday, while Morgan Stanley and Bank of America will close the earnings season on Wednesday.

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Reporting by Anirban Sen in Bengaluru and Matt Scuffham in New York; Editing by Saumyadeb Chakrabarty

Our standards: The Thomson Reuters Trust Principles.

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