JPMorgan Chase Beats Estimates on Record Trading Revenue, Credit Reserve Releases

Kimberly Redmond  |

Image source: JPMorgan Chase

JPMorgan Chase & Co. posted better-than-expected fourth quarter earnings Friday, as it released some of its reserves earmarked to cover potential loan defaults by struggling businesses and households.

The New York bank’s net income rose 42% to $12.1 billion, or $3.79 per share, in the quarter ending Dec. 31. Its revenue increased 3% to $30.2 billion. During the fourth quarter, JP Morgan released $2.9 billion from its credit reserves, which added 72 cents to its earnings per share.

Trading revenue for the fourth quarter hit a record for JPMorgan, with $1.99 billion from equities trading and $3.95 billion from fixed income trading.

JP Morgan Chairman and Chief Executive Officer Jamie Dimon said the bank “reported strong results in the fourth quarter of 2020, concluding a challenging year where we generated record revenue, benefiting from our diversified business model and dedicated employees.”

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“While we reported record profits of $12.1 billion, we do not consider the reserve takedown of $2.9 billion to represent core or recurring profits – essentially reserve calculations, while done extremely diligently and carefully, now involve multiple, multi-year hypothetical probability-adjusted scenarios, which may or may not occur and which can be expected to introduce quarterly volatility in our reserves,” he said in a statement.

Dimon pointed to two big developments that occurred in late 2020 – effective COVID-19 vaccines and a second round of federal stimulus funding – as reasons for why the bank drew down some of its reserves.

In anticipation that COVID-19-related shutdowns would result in more loan defaults, JPMorgan was one of several banks last year to boost the amount of money in its loan-loss reserves.

According to Dimon, the released $2.9 billion from its reserves and will maintain $30 billion in the fund reflecting what he called “significant near-term uncertainty.”

The reserve, he added, “will allow us to withstand an economic environment far worse than the current base forecast by most economists.”

In an interview with Reuters, Dimon said they’re hopeful those developments will help the economy make a turnaround by the second half of 2021. “There will be a lot of pent-up demand and, hopefully, optimism because of the fact that we are getting through this mess. By sometime this summer you could have a very healthy economy,” Dimon said.

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Source: Equities News

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