J.P. Morgan's Earnings Climb, Boosted by Trading -- 4th Update
14 April 2017 - 2:23AM
Dow Jones News
By Peter Rudegeair
J.P. Morgan Chase & Co. posted a 17% rise in first-quarter
profit that was driven by a continued rebound in areas such as bond
trading, while lending margins expanded as rates recently ticked
up.
The results from the nation's largest bank by assets showed that
while hoped-for benefits the Trump administration would bring to
financial firms have yet to be realized, many of banks'
bread-and-butter businesses were performing well. Shares in J.P.
Morgan climbed 0.5% to $85.85 in morning trading.
The lack of progress on loosening financial regulations,
reforming the tax code and other policies that are high priorities
for businesses hasn't alarmed J.P. Morgan executives. They said
they expect such pro-growth policies to eventually lead to
increased spending and borrowing.
"You all should expect as a given that when you have a new
president and they get going... it's going to be a sausage-making
period," Chief Executive James Dimon said on a conference call with
analysts. "To expect it to be smooth sailing--that would just be
silly."
And J.P. Morgan showed that it isn't dependent on Washington.
The bank reported a first-quarter profit of $6.45 billion, or $1.65
a share, versus $5.52 billion, or $1.35 a share, a year earlier.
Analysts polled by Thomson Reuters had expected earnings of $1.52 a
share.
The bank's return on equity, a key measure of profitability, was
11% in the first quarter compared with 9% a year ago. This marked
the fourth consecutive quarter in which the bank's return was at or
above the 10% level, which is considered its theoretical cost of
capital.
J.P. Morgan got a boost from still low -- but rising -- interest
rates. Net interest income rose 6% to $12.06 billion in the first
quarter. That helped reverse pressure on the bank's net interest
margin, a measure of how profitably it lends and invests its
customers' deposits. This rose to 2.33% in the first quarter, low
by historic standards but up 0.11 percentage points from the fourth
quarter.
That helped offset a slowdown in the volume of loans the bank
generated at the start of the year. Total loans of $896 billion
were flat on the fourth quarter of 2016. Chief Financial Officer
Marianne Lake said the lending data was affected by noise from the
financing of large acquisitions in earlier periods as well as a
decision by large companies to fund their operations by issuing
bonds as opposed to taking out loans.
Trading was a brighter spot. Revenue from trading bonds, stocks
and currencies, among other things, 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%.
Overall, adjusted revenue rose 6.2% to $25.59 billion. Analysts
had expected $24.88 billion.
Costs increased 8.5% to $15.02 billion from $13.84 billion a
year earlier, due in part to a bump in compensation costs in J.P.
Morgan's investment bank. In February executives told investors to
expect a rise in expenses this year to fund investments and
growth.
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 with $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. 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 with a 0.6% charge-off rate in the
fourth quarter of 2016. For all of 2017, the bank expects net
charge-offs to be about $5 billion.
J.P. Morgan used the strength and breadth of its results as a
retort to renewed talk of the need to split the businesses of big
banks. A Trump administration official recently suggested the
government could be open to re-instituting rules around a
separation of bank businesses.
In response to questions about this, Ms. Lake said the diversity
of J.P. Morgan's businesses was a source of strength for the
company and for financial markets during the financial crisis. She
added that a separation of those activities "doesn't feel
consistent with the rest of the objectives of the administration"
and "feels unnecessary" given the amount of capital and liquidity
the banking industry has added in recent years.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
April 13, 2017 12:08 ET (16:08 GMT)
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