JPMorgan Chase (NYSE: JPM) kicked off fourth quarter earnings beating expectations but faced with higher expenses and slower trading activity. Revenue in the group’s investment banking division grew up 28% from the fourth quarter of 2020 to $3.2 billion, driven by higher fees from mergers and acquisitions and initial public offerings. with the other major money center banks along with the world’s largest investment management company. Wells Fargo (NYSE: WFC) and Citigroup (NYSE:C) are also reporting on Friday along with BlackRock (NYSE: BLK). The earnings come after a week that has seen many banks stocks hit 52-week highs.
JPMorgan Q4 2021
Q4 2021 earnings before the open; conference call at 8:30 a.m. ET Friday
- Profits of $10.4 billion or earnings per share to $3.33. Projected EPS: $3.01
- $30.3 billion in revenue. Projected revenue: $29.85 billion
- Trading revenue fell 11% to $5.3 billion
- Net interest income of $13.7 billion v $13.1 billion forecast was up 3% from a year ago.
JPMorgan Chase $JPM, America’s largest bank kicked off the banking sector’s Q4 22 earnings season on Friday before the market opens with expectations for strong earnings. Last quarter JP Morgan blew away consensus expectations on both profits and revenues.
Friday’s results bring net income for the full year to $48.3 billion, up from $29.1 billion in 2020, but the quarterly figures mark a decline from the same period in the prior year. JPMorgan’s fourth-quarter 2021 profits were 14% lower than in 2020, when the bank posted earnings of $12.1 billion, or $3.79 a share.
A slowdown in trading activity affected quarterly earnings. Trading revenue fell 11% to $5.3 billion, down after a record quarter last year. The bank said it was a challenging trading environment in rates, with lower sales in derivatives and a 2% decline in equity markets. Note that JPMorgan injected $2.9 billion of credit reserves into earnings in Q4 2020, and just $1.8 billion in Q4 2021. Reserve releases are also expected to continue slowing. This has impacted earnings comparisons.
Higher-than-expected costs hurt with $17.9 billion in expenses in the quarter, largely due to compensation and spending on marketing and technology. JPMorgan sees full-year expenses increasing almost 9% to $77 billion in 2022 much higher than expected which brought in selling of the stock after the report.
On the positive side the bank said it expects net interest income, excluding its fixed income and equity markets divisions, of $50 billion in 2022, up from $44.5 billion in 2021. This is higher than what was expected by analysts.
“JPMorganChase reported solid results across our businesses benefiting from elevated capital markets activity and a pick up in lending activity as firmwide average loans were up 6%,” Jamie Dimon, the bank’s chairman and CEO, said in a statement.
JPM currently has total assets of nearly $4 trillion and remains the biggest bank in the world by market capitalization at $490.7 billion. JPMorgan Chase in December was fined $200 million by regulators for several “bookkeeping failures” and for letting employees use personal communications devices to send texts and emails about sensitive company business and evade authorities.
“The economy continues to do quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks,” Dimon said. “We remain optimistic on U.S. economic growth as business sentiment is upbeat and consumers are benefiting from job and wage growth.”
Overall, analysts and banks are looking for a strong earnings season, partly in response to the improving economy and the vaccine rollout but predominantly from the rise in interest rates with the Fed looking to raise rates. Banks will benefit from rising rates, provided that they don’t go up too rapidly and hurt demand for mortgages, credit cards and other loans.
The earnings come after a week that has seen many banks stocks hit 52-week highs. The Invesco KBW Bank ETF, which has Bank of America, Wells Fargo, JPMorgan Chase, US Bancorp and Citigroup as its top holdings, is up over 8% already this year and more than 19% in the past six months. Fourth-quarter corporate earnings likely benefited from this firming economic backdrop.
Bank Release Schedule
- JPMorgan Chase, Citi and Wells Fargo report earnings on Friday. The world’s largest asset manager BlackRock (BLK) also reports.
- US Bancorp and Bank of America release their earnings on Wednesday, January 19 with investment banking powerhouse Morgan Stanley.
- Goldman Sachs is due to report earnings on Tuesday, January 18.
The brighter outlook for bank profits coincides with higher in Treasury yields. The benchmark 10-year Treasury yield has risen by over 70 basis points for the year-to-date, with higher interest rates boosting banks income from their core lending businesses. Big banks’ fourth-quarter results should get another boost from trading activity, given the stock markets record-setting rally and volatility in the bond markets. Fixed-income trading revenues have risen in the past year by the most in at least a decade across the bond trading divisions at Goldman Sachs, Citi, Morgan Stanley, JPMorgan and Bank of America.
The bank rally has been extended this year by expectations for the rise in rates not impacting the economy reopening and infrastructure spending. The new surge in home prices has also buoyed optimism for the mortgage business and banks’ profits thereto.
- Q4 2021 earnings before the bell; conference call at 10 a.m. ET Friday
- Projected EPS: $1.10
- Projected revenue: $18.67 billion
Wells Fargo has been the top-performing stock among U.S. lenders over the past year, up over 60% to $54.67. With the seemingly endless major scandal involving fake accounts behind it and a new management team in place, Wells Fargo has been gaining support. $WFC has risen around 11% in the past month alone.
There is that reputational risk hangs over the bank after a series of scandals that included creating fake customer accounts.
- Q4 2021 earnings before the open; conference call at 11 a.m. ET Friday
- Projected EPS: $1.55
- Projected revenue: $16.92 billion
Shares of Citigroup have been lagging behind other bank stocks. Since January 2021, C is down 1.69%) at $66.21 a share. Citigroup is currently undergoing changes under the leadership of Chief Executive Officer Jane Fraser and is in the process of exiting its consumer banking business in 13 markets around the world, a process that is expected to provide the bank with $7 billion in cash. Citi now operates consumer banking solely from 4 wealth centers: Singapore, Hong Kong, UAE, and London.
However, the exits from Australia and South Korea have not been smooth and cost Citigroup nearly $1.7 billion. Another black mark was Citigroup’s Board of Directors approved incentives that could see three executives in the bank earn up to $5 million in compensation based on the transformation’s success.
The stock has risen 12.6% since the company last reported earnings on Jan. 15.
- Q4 2021 earnings before the bell; conference call at 8:30 a.m. ET Friday
- Projected EPS: $10.10
- Projected revenue: $5.12 billion
BlackRock income from its ETF and investment management income continues to soar being the largest investment management company in the world with assets under management of $9.5 trillion as of October 2021. In the past 12 months, BlackRock stock has risen about 21% higher to its current price of $889.48 a share.
BlackRock recently announced that it is pulling $2 trillion of assets that had been managed by State Street (NYSE: STT). BlackRock says it will reduce its reliance on a single outside investment manager and help to lower its costs for back-office workers. BlackRock said it plans to move the administrative and accounting tasks that State Street had performed to other lenders, such as Citigroup and Bank of New York Mellon Corp. (NYSE: BK).
Source: JPM, WFC, C, BLK,
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