JPMorgan beats earnings estimates for better-than-expected credit score and record-breaking buying and selling quantity
Jamie Dimon, CEO of JP Morgan Chase, will appear in CNBC's Squawk Box at the 2020 World Economic Forum in Davos, Switzerland on January 22nd, 2020.
Adam Galica | CNBC
JPMorgan Chase on Friday beat analysts' estimates for fourth quarter earnings on record results and a boost from releasing funds previously earmarked for credit losses.
The bank posted earnings of $ 3.79 per share, beating the estimate of $ 2.62 per share by analysts surveyed by Refinitiv. Even without the 72 cents per share increase in credit reserves, it would have exceeded estimates. The company had sales of $ 30.16 billion, beating the estimate of $ 28.7 billion.
JPMorgan shares were down 1.6% on Friday after the earnings report.
Jamie Dimon, CEO of JPMorgan, cited the two main developments that occurred in late 2020 – news of effective coronavirus vaccines and another round of government incentives – as reasons for running down his bank's reserves. The company announced that it had released $ 2.9 billion from its stack of cash earmarked for expected loan defaults in the quarter, increasing from $ 1.9 billion to approximately $ 1 billion Depreciation led.
"While positive vaccine and stimulus developments this quarter have contributed to these reserve releases, our credit reserves of over $ 30 billion continue to reflect significant economic uncertainties in the near term and will enable us to withstand an economic environment far worse than current Baseline forecasts of most economists, "Dimon said in a statement.
Dimon added that he did not view the $ 2.9 billion reserve release as part of the bank's core operating result, but rather the result of calculations that "now include several multi-year hypothetical probabilistic scenarios that may or may not occur" and this could bring the volatility from quarter to quarter.
"These are outstanding gains from JPMorgan Chase and will set the pace for other banks," said Octavio Marenzi, CEO of Opimas, a capital markets management consultancy. The bank "appeared to have excess reserve against credit losses in the first and second quarters in response to Covid, and now those reserves are being released, increasing the bank's profits."
A bright spot for Wall Street in 2020 was trading, which is expected to be the best year in terms of total revenue since the financial crisis thanks to unprecedented moves by the Federal Reserve to support markets. Investment bankers also benefited from the fact that wide open markets brought with them increased demand for IPOs and a record rate of debt issuance.
The largest US bank by assets said it had a record high for trading in the fourth quarter. Stock trading sales of $ 1.99 billion surpassed Refinitiv's estimate of $ 1.84 billion, while annuity sales of $ 3.95 billion were just below the estimate of $ 4.12 billion. Last month, Dimon expected commercial and investment banking revenue to be 20% higher in the fourth quarter than a year earlier.
According to the earnings report, analysts could ask Dimon about succession planning because of a health crisis last year. While it was widely reported that Dimon had heart surgery last March, he recently told the Wall Street Journal that his condition was so precarious that he thought he "couldn't make it".
Analysts will also be excited to see how quickly the bank expects share buybacks. JPMorgan announced a $ 30 billion share buyback program last month after the Federal Reserve announced that the industry could resume buybacks in the first quarter.
CFO Jennifer Piepszak told reporters during a media call that the bank could buy back up to $ 4.5 billion worth of shares in the first quarter.
JPMorgan stocks were down 8.7% over the past year, compared with the KBW Bank Index's 4.3% decline.
Here are the numbers:
- Earnings: $ 3.79 per share versus $ 2.62 per share, according to Refinitiv.
- Revenue: $ 30.16 billion versus $ 28.70 billion according to Refinitiv.
Also on Friday, Citigroup and Wells Fargo released mixed results for the fourth quarter.