Updated Jan. 14, 2016 8:50 a.m. ET
Cost-cutting and higher earnings within the lender’s investment banking division drove fourth-quarter profit about 10% higher to $5.43 billion, or $1.32 a share. Analysts polled by Thomson Reuters had expected earnings of $1.25 a share. Revenue rose slightly to $23.75 billion and also beat expectations.
For the year, J.P. Morgan earned $24.44 billion, an all-time record for the bank that exceeded 2014 earnings of $21.76 billion, which was then a record. The result rivaled Citigroup Inc.
’s earnings before the financial crisis of $24.59 billion in 2005.
Shares gained 2.1% premarket.
While J.P. Morgan, the largest U.S. bank by assets, has defended its global size and scale, the bank has also taken steps to shrink its balance sheet to avoid the toughest capital requirements that the Federal Reserve applies to the largest institutions. Total assets at the bank fell 3% to $2.35 trillion between the end of September and the end of December, and the bank said it expected to face a lower capital surcharge of 3.5% partially as a result.
“The balance sheet was down in part purposefully and a little bit because of market conditions at the year end,” Chief Financial Officer Marianne Lake said on a call with media. She added that the balance sheet could grow as the bank aims to boost overall deposits and loans.
The company’s business lines experienced mixed results. Overall profit at J.P. Morgan’s corporate and investment bank rose 80% to $1.75 billion from $972 million in the same period last year. But J.P. Morgan’s commercial bank earned $550 million, a 21% decrease from the $693 million it earned in the year-ago quarter, and the bank’s asset management unit reported profit of $507 million, down from $540 million in the fourth quarter of 2014.
Within the investment bank, many main businesses recorded declines in revenue that were made up for by lower legal fees and an 8% drop in compensation expenses. Investment-banking fees fell 15% to $ 1.54 billion as a 43% jump in merger advisory fees was outweighed by a 43% fall in the larger business of underwriting bond deals.
J.P. Morgan’s trading revenue decreased about 4% to $3.64 billion from $3.8 billion in the fourth quarter of 2014. Compared with the third quarter, trading was down 16%, about where corporate and investment bank head Daniel Pinto predicted it would be in November.
Fixed-income trading revenue edged down 3% to $2.57 billion, and equity trading declined 7% to $1.06 billion. Backing out revenue declines related to businesses that the bank had exited in the previous year, the bank said fixed-income trading was only down 1% and equity trading was flat.
J.P. Morgan Chief Executive James Dimon said the bank is tracking the China markets closely given the volatility, but it hasn’t changed the firm’s long-term plan. Ms. Lake added the turbulence isn’t necessarily bad for the bank since it creates opportunities in trading and asset management, but it does suffer when clients’ risk appetites are down, which they were in the second half of the year.
Within the consumer bank, profit was $2.41 billion, slightly higher than the $2.18 billion in the fourth quarter a year ago. J.P. Morgan extended $22.5 billion in mortgages in the quarter, a decrease of 2% from the $23 billion the bank extended in the fourth quarter a year ago. Profits in its mortgage division, one of the largest in the U.S. by volume, were $266 million, down 21% from the $338 million it reported in the year-earlier period.
Costs decreased about 7%, to $14.26 billion in the quarter from $15.41 billion a year earlier, an effort the bank continues to drill down on.
Legal costs totaled $644 million in the fourth quarter, compared with $990 million in the same period a year ago and $1.3 billion in the third quarter.
J.P. Morgan set aside $1.25 billion in the fourth quarter to cover loans that could potentially turn bad in the future, of which $124 million was in its energy portfolio and $35 million was in its metals and mining portfolio. That compares with $840 million in the fourth quarter of 2014 and $682 million in the third quarter of 2015. The bank lost $1.06 billion to loan defaults, or 0.52% of its overall portfolio, compared with a 0.65% charge-off rate in the third quarter.
Ms. Lake said the bank continues to watch the energy sector as oil hovers around $30 a barrel and expects additional “incremental reserves” in the next couple of quarters.
Return on equity, a measure of J.P. Morgan’s profitability, was 9% in the fourth quarter, unchanged from the same period a year ago. This week’s announcement that MetLife Inc.
will divest a chunk of one of its main business could re-insert J.P. Morgan into the debate about whether it might be better for shareholders if global banks broke themselves up into smaller, more manageable units.
Shares in J.P. Morgan, which edged up 0.5% premarket, hit an all-time record above $70 in July but have fallen 19% since then. Since the beginning of 2016, they are down 13% compared with an 11% decrease in the KBW Nasdaq
index of bank stocks. Big-bank stocks have been hit hard this year as jitters about a China slowdown and oil-company defaults pressure the earnings outlook.
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