Earnings JPM 4Q 2021

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Shares of JPMorgan Chase fell on Friday after the bank posted its smallest quarterly earnings beat in nearly two years and the lender’s CFO lowered its guidance on company-wide returns.

Here are the numbers:

  • Earnings: $ 3.33 per share, versus an estimate of $ 3.01, according to Refinitiv.
  • Revenue: $ 30.35 billion, versus an estimate of $ 29.9 billion.

The higher-than-expected spending resulted in a 14% decline in fourth quarter profit to $ 10.4 billion, while revenue remained broadly unchanged at $ 30.35 billion. JPMorgan said in its release that it took a net benefit of $ 1.8 billion from the release of loan loss reserves that never materialized; without that increase of 47 cents per share, earnings would have been $ 2.86 per share.

The bank’s shares fell 6.2%.

CFO Jeremy Barnum told reporters on a conference call that management expected Wall Street’s “headwinds” of higher spending and revenue moderation would cause the company’s returns to decline compared to recent years. That means the bank is likely to miss the firm’s 17% target for returns on equity, he said.

“Over the next year or two, we expect to gain slightly below that target as headwinds are likely to outstrip the tail winds,” said Barnum, adding that the target is still valid in the “medium term”.

JPMorgan will see expenses rise 8% to around $ 77 billion in 2022, Barnum added, driven by “inflationary pressures” and $ 3.5 billion in investments.

Asked if a tight labor market was forcing JPMorgan to pay its staff more, Barnum replied: “It is true that labor markets are tight, that there is some labor inflation and it is important to us. attract and retain the best talent and pay competitively based on performance. “

However, the bank will benefit from rising interest rates and lending growth that have attracted investors to the financial sector in recent months. Net interest income is likely to reach about $ 50 billion this year, a $ 5.5 billion gain from 2021 on projected rates and “high single-digit” loan growth, Barnum said.

Having set aside billions of dollars for loan losses at the start of the Covid pandemic, JPMorgan benefited from the steady release of funds as borrowers held up better than expected. However, CEO Jamie Dimon said he doesn’t see accounting advantage as a key part of business results. Even including the boost, JPMorgan recorded the smallest earnings beat in the past seven quarters.

“The economy continues to perform quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks,” Dimon said in the statement. “Credit continues to be healthy with exceptionally low net charges and we remain optimistic about US economic growth.”

While company-wide revenue increased 1% in the fourth quarter as slowing markets were offset by robust investment bank fees, non-interest charges increased 11% to $ 17.9 billion on increased clearing costs, the bank said. It was above the $ 17.63 billion estimate of analysts surveyed by FactSet.

JPMorgan executives previously talked about the need to invest in technology and pay employees after a boom year on Wall Street; however, analysts may ask management about the spending trajectory this year.

“JPMorgan’s results were surprisingly weak and hampered by unusually poor expense management,” said Octavio Marenzi, CEO of consultancy Opimas, in an e-mailed statement.

Government stimulus programs during the pandemic left consumers and businesses in crisis, causing stagnant loan growth and prompting Dimon to say last year that loan growth was “challenged”. But analysts indicated a rebound in the fourth quarter, driven by demand from companies and credit card borrowers.

JPMorgan chief operating officer Daniel Pinto said at a conference last month that fourth quarter commercial revenues were headed for a 10% decline, driven by a drop in fixed income business from record highs.

Commercial revenue declined slightly, dropping 11% to $ 5.3 billion in the quarter, the bank said. This was largely driven by a slowdown in bond trading desks. Investment banking helped with a 37% increase in fees.

Last month, the bank was forced to pay a $ 200 million fine to settle charges that its Wall Street division allowed workers to use messaging apps to circumvent record keeping laws.

Analysts can also ask the bank about the impact of its recent decision to curb overdraft fees. JPMorgan said last month that it would give customers a grace period to avoid punitive fees, a move that along with other changes will have a “not insignificant” impact on revenue.

Shares of JPMorgan were up 6.2% this year before Friday, lagging behind the 11.6% rise in the KBW Bank Index.

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