JPMorgan profits soar to record highs after bank freed up bad loan reserves

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JPMorgan Chase

JPM -0.47%

& Co. reported a nearly fivefold increase in quarterly profit thanks to booming markets and economic recovery, which allowed the company to free up the $ 5.2 billion it had set aside to cover bad loans.

The country’s largest bank reported record quarterly earnings of $ 14.3 billion, or $ 4.50 a share, well above analysts polled by FactSet forecasts of $ 3.10 a share. A year earlier, JPMorgan reported quarterly earnings of $ 2.87 billion, or $ 0.78 per share. The bank’s revenue amounted to $ 32.27 billion, which is 14% more than a year earlier.

Since the coronavirus pandemic hit the U.S. early last year, JPMorgan and other major banks have set aside billions of dollars in loan loss reserves to prepare for a potential spate of consumer and business defaults. The rainy day funds were generating quarterly returns for most of 2020. But big losses never happened, and now banks are now cashing out on their efforts.

Wall Street also pushed JPMorgan to its first quarter results. Corporate and investment bank profits nearly tripled to $ 5.74 billion, a quarterly record, and revenues rose 46% to $ 14.6 billion. Trading revenues were up 25% year-over-year, while investment banking fees were up 57%.

The US economic recovery has surpassed domestic forecasts of banks. Banks believe that trillions of dollars in government stimulus flowing through the economy, coupled with accelerated vaccine distribution, have shielded consumers and businesses from the worst financial scenarios of the pandemic.

Jamie Dimon, CEO of JPMorgan, said the economy is ready for the “Goldilocks moment.”


Photo:

Sean Pressley for The Wall Street Journal

“The year was a good start and the economy is recovering in a strong way,” CFO Jennifer Pipsak said during a telephone conversation with reporters on Wednesday morning. “Of course, there are still risks and uncertainties ahead of us that we are preparing for, as well as the specific challenges we face.”

In his annual letter to shareholders last week, CEO Jamie Dimon said he believed the economy is attuned to the “Goldilocks moment” rapid growth and inflation, and interest rates that are slowly rising.

The bank’s stock price reflects this shift. JPMorgan shares are up 19% since the beginning of the year. The KBW Nasdaq Bank Index, which tracks the stocks of major lenders, is up more than 26% this year, up from nearly 10% for the S&P 500.

The forces that propelled JPMorgan’s Wall Street operation to success best fourth quarter ever Last year continued into the first months of 2021. Record investments in firms with blank checks have helped raise stock underwriting fees. Trillions of dollars in government stimulus poured into American checking accounts, and some of it ended up in the stock market.

In the first three months of the year, the bank earned a record $ 3 billion in investment banking. He expects a stronger economy, a robust list of public offerings and high CEO confidence to ensure a steady stream of deals, Daniel Pinto, head of corporate and investment banking at the bank, said in a memo to employees on Wednesday.

JPMorgan’s sprawling consumer business dropped 6% in revenue. In asset and capital management, revenue increased by 20%.

The total volume of loans fell by about 4% compared to the previous year. Loan portfolios of major US lenders shrink in 2020 for the first time in more than a decade, but bank executives say they expect demand to rise later this year as the economy continues to recover.

However, over the past year, banks have been under pressure from low interest rates, which have limited their ability to lend. The gap between JPMorgan’s earnings on loans and paying off deposits fell to 1.69% in the first quarter from 2.37% a year earlier.

Deposits have gone up another 6% from the previous quarter to $ 2.28 trillion.

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Write to McCaffrey’s eagle orla.mccaffrey@wsj.com

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