JPMorgan’s Trading Surge, Credit Outlook Fuels Record Profit

After four quarters under the shadow of the pandemic, the biggest U.S. bank is hardly missing a beat.

JPMorgan Chase & Co. posted record profit in the fourth quarter after a surge in trading and investment-banking fees helped its Wall Street unit close out its most profitable year ever. The bank also released loan-loss reserves for the second quarter in a row, a sign that defaults won’t take as big a toll as previously expected.

“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists,” Chief Executive Officer Jamie Dimon said in a statement Friday.

JPMorgan’s earnings suggest the clouds are starting to lift on the banking industry, and hint at what’s to come when the rest of Wall Street reports results later Friday and early next week. With vaccines raising hopes that the pandemic could ease in coming months, some analysts are predicting the industry’s profits will rebound enough in 2021 to undo last year’s dive.

The fourth-quarter haul lifted JPMorgan’s annual profit to $29 billion in a year that saw unprecedented surges in unemployment and economic disruptions tied to pandemic lockdowns. That was more than any other major U.S. bank has earned in any year.

The firm’s Wall Street unit generated the most profit and revenue it ever has in a fourth quarter, capping off a record year for the business that has helped prop up a consumer-lending division dealing with business closures and swelling unemployment rolls. JPMorgan’s traders generated $5.9 billion in the last three months of the year thanks to strength in credit, currencies, emerging markets and equity derivatives trading, among other pockets.

That marked a 20% jump in revenue from a year earlier, matching the pace Dimonsaid the business was on in December. JPMorgan’s investment bankers posted a 34% jump in fees for providing merger advice and underwriting stock and bond offerings.

The strength of the Wall Street businesses helped profit rise 42% to $12.1 billion. Analysts were expecting a 4% drop.

JPMorgan shares rose 0.3% to $141.58 at 7:51 a.m. in early New York trading. The stock was up 11% this month through Thursday, after a drop of almost 9% in 2020.

In releasing almost $3 billion of its credit reserves, far more than analysts had predicted, JPMorgan is signaling more optimism about the outlook for the economy. The bank said in October that it didn’t expect material losses in its consumer portfolio to show up until the second half of 2021. Net charge-offs fell 11% from the third quarter to $1.05 billion.

While delinquencies remained low, investors will be eager to hear how soon JPMorgan’s leaders expect more loan defaults to finally hit the bank’s balance sheet, and how they forecast the economy will perform this year. Executives have warned that the effects of the pandemic could drag on for years.

JPMorgan said $24.2 billion, or 2.9%, of the loans in its consumer portfolio were still in payment deferral at the end of the fourth quarter, down from $29.3 billion in the previous period. Most were residential real estate loans. It said that 91% of the accounts that exited payment deferral were current on their payments.

Other highlights:

• The bank generated $13.3 billion of net interest income, 6% less than last year. That brought the full-year metric to $54.5 billion, below the bank’s guidance of $55 billion. JPMorgan boosted its outlook for 2021 NII to $55.5 billion from the $54 billion outlook provided in December.
• Expenses fell to $16 billion from $16.3 billion in the same period last year. Analysts predicted the metric would be flat. The bank increased its expense outlook for 2021 to at least $68 billion, having previously guided for $67 billion of expenses this year.
• The bank said it would spend $900 million more on technology investments this year than it did last year to “improve customer experiences” and boost data analytics, A.I. and cyber capabilities.

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