JPMorgan earnings top estimates despite sluggish trading

JPMorgan Chase got the big banks' fourth-quarter earnings season off to a brisk start on Friday morning, beating analysts' expectations for profit despite a jump in provisions, a particularly sluggish period for trading, and a loss relating to hobbled South African retailer Steinhoff.

Analysts had been braced for a messy quarter, full of one-off charges prompted by the reform of America’s tax system at the end of last year.

JPMorgan, the biggest bank in the US by assets and traditionally the first to report, said that earnings per share for the period came to $1.76, excluding significant items such as tax changes, on revenue of $24.2 billion. The top line was lighter than forecasts of $25.5 billion, according to analysts canvassed by Bloomberg, but EPS was better than the forecast $1.69.

During the period provisions for credit losses came to $1.3 billion, up 51 per cent from a year earlier, suggesting that the bank is seeing signs of deterioration in certain wholesale and consumer portfolios after several years of steady improvement.

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The markets business was notably weak, with revenue from trading fixed-income products down 27 per cent from a year earlier. Equities was much better, flat from a strong election-boosted period in 2016, and including a mark-to-market loss of $143 millon on a margin loan to the billionaire backer of Steinhoff International.

Full-year net profits of $26.5 billion, excluding significant items, were a record.

Jamie Dimon, chairman and chief executive, said the enactment of tax reform during the quarter for the first time in decades, was "a significant positive outcome" for the country.

“US companies will be more competitive globally, which will ultimately benefit all Americans,” he said.

The tax overhaul, which was signed into law in late December, means that figures for all banks will be laced with one-off charges, accelerated expenses and one-time bonuses to staff. Within the past few weeks Citigroup has warned of a $20 billion hit while Goldman Sachs has indicated charges in the region of $5 billion.

Given all those moving parts it'll tough to talk about companies beating or missing forecasts, said Ken Usdin, analyst at Jefferies, before the release of Friday's numbers.

"The tax reform has people in a tizzy," agreed Chris Kotowski at Oppenheimer. "It distorts all the normal things about earnings per share. Everyone has been scratching their heads about how to look at it."

During the call with JPMorgan executives later this morning, analysts will be focused on the longer-term impact of lower taxes and higher interest rates, as well as possible improvements in the sluggish environment for capital-markets and lending.

Reserve-building in the credit card business is likely to be a focus too. JPMorgan has been going for growth, especially through its higher-end Sapphire card. Across the country, credit-card balances increased by $24 billion in the third quarter to $810 billion, according to nationwide figures tracked by the New York Federal Reserve - not far off the record $870 billion at the tail end of 2008.

– Copyright The Financial Times Limited 2018