J.P. Morgan's Earnings Climb, Boosted by Trading -- 3rd Update
13 April 2017 - 11:44PM
Dow Jones News
By Emily Glazer and Peter Rudegeair
J.P. Morgan Chase & Co. said its first-quarter profit rose
17% as a boost from trading helped results for the nation's biggest
bank by assets.
Earnings and revenue beat expectations, pushing shares up 0.5%
premarket.
The New York bank reported a profit of $6.45 billion, or $1.65 a
share. That compared with a profit of $5.52 billion, or $1.35 a
share, in the same period of 2016. Analysts polled by Thomson
Reuters had expected earnings of $1.52 a share.
Adjusted revenue rose 6.2% to $25.59 billion. Analysts had
expected $24.88 billion.
The results showed that the momentum that drove trading,
investment-banking and lending revenue higher for much of last year
continued into the start of 2017, but many investors are more
focused on future policy changes. Shares in J.P. Morgan and other
banks rallied following the election on the thesis that a Trump
administration would usher in a new approach to bank regulation,
but that is yet to happen.
"People are serious about wanting to make appropriate change to
the regulatory environment, and we will be appropriately engaged,"
Chief Financial Officer Marianne Lake said on a conference call
with reporters.
The boost from still low -- but rising -- interest rates will
also likely be a major focus, as an increase in rates helps the
profitability of big consumer lenders like J.P. Morgan. Net
interest income rose 6% to $12.06 billion in the first quarter, and
the bank said to expect it to be up about $4.5 billion for all of
2017.
Recent increases in short-term lending rates by the Federal
Reserve should over time lead to higher profit margins for banks.
Just how big those profits will be depends as well, though, on the
steepness of the yield curve. J.P. Morgan said its forecast was
based upon the current implied yield curve.
J.P. Morgan's trading revenue increased 13% to $5.82 billion
from $5.17 billion in the first quarter of 2016. Fixed-income
trading revenue climbed 17% thanks in part to higher activity in
trading government bonds and other securities closely tied to
interest rates in advance of elections in Europe. Equities trading
revenue edged up 1.9%.
J.P. Morgan extended $22.4 billion in mortgages in the quarter,
unchanged from the first quarter a year ago. Revenue in its
mortgage division, one of the largest in the U.S. by volume, fell
18% to $1.53 billion due to weaker servicing results.
Overall profit at the corporate and investment bank was $3.24
billion, up nearly two-thirds from $1.98 billion in the same period
last year. In the consumer bank, profits were $1.99 billion
compared with $2.49 billion in the first quarter a year ago.
J.P. Morgan's commercial bank earned $799 million, a 61%
increase from the $496 million it earned in the year-ago quarter,
and the bank's asset management unit reported profits of $385
million, down one-third from the first quarter of 2016.
Costs increased 8.5% to $15.02 billion from $13.84 billion a
year earlier, an effort the bank continues to drill down on.
Executives said in a February investor presentation that expenses
are expected to rise in 2017 to fund investments and growth.
Legal costs totaled $218 million in the first quarter, compared
with no material costs in the same period a year ago and $230
million in the fourth quarter.
J.P. Morgan set aside $1.32 billion in the first quarter to
cover loans that could potentially turn bad in the future. That
compares to $1.82 billion in the first quarter of 2016 and $864
million in the fourth quarter of 2016.
The improving outlook for oil and gas companies led J.P. Morgan
to release $133 million in business-loan reserves, but a writedown
in its student-loan portfolio and higher expected defaults on
credit cards prompted a $380 million addition to its consumer-loan
reserves.
The bank lost $1.65 billion to loan defaults, or 0.79% of its
overall portfolio, compared to a 0.60% charge-off rate in the
fourth quarter of 2016. For all of 2017, the bank expects net
charge-offs to be around $5 billion.
Return on equity, a measure of the J.P. Morgan's profitability,
was 11% in the first quarter compared with 9% in the first quarter
a year ago. J.P. Morgan had faced questions from analysts,
investors and shareholders over recent years over whether it might
be better for shareholders if the global bank broke itself up into
smaller, more manageable units. Initially the industry thought Mr.
Trump's election and the discussion of lighter regulation would
table that discussion but recently top Trump officials have
suggested otherwise.
J.P. Morgan's shares rallied following the U.S. presidential
election, but since the start of the year they down about 1%. That
compares with a 2.7% fall in the KBW Nasdaq index of bank
stocks.
Write to Emily Glazer at emily.glazer@wsj.com and Peter
Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
April 13, 2017 09:29 ET (13:29 GMT)
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