JPM earnings 4Q 2021

Shares of JPMorgan Chase fell on Friday after the bank posted its smallest pace of quarterly earnings in nearly two years and the lender’s chief financial officer lowered his forecast for 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.

Higher-than-expected spending drove fourth-quarter profit down 14% to $10.4 billion, while revenue was virtually unchanged at $30.35 billion. JPMorgan said in its statement that it made a net profit of $1.8 billion from the release of loan loss reserves that never materialized; without this increase of 47 cents per share, earnings would have been $2.86 per share.

The bank’s shares fell 5.3%.

Chief Financial Officer Jeremy Barnum told reporters on a conference call that management expected “headwinds” from higher spending and moderating revenues from Wall Street to send the company’s returns tumbling by compared to recent years. That means the bank is likely to miss the company’s 17% return on capital target, he said.

“Over the next couple of years we expect to earn slightly below that target as headwinds likely outweigh tailwinds,” Barnum said, adding the target still stands in the “medium term.”

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

When asked if a tight labor market is forcing JPMorgan to pay its staff more, Barnum said, “It’s true that labor markets are tight, there’s a bit of labor inflation going on. and it is important for us to attract and retain the best talent and compensate competitively based on performance.”

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

After setting aside billions of dollars for loan losses earlier in the Covid pandemic, JPMorgan has profited by steadily releasing funds as borrowers have held up better than expected. Still, CEO Jamie Dimon said he doesn’t see accounting benefit as a critical part of business results. Even including the boost, JPMorgan posted the smallest profit beat in the past seven quarters.

“The economy continues to do well despite headwinds from 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 bullish on U.S. economic growth.”

While the company’s revenue rose 1% in the fourth quarter as softer markets were offset by strong investment banking fees, noninterest expenses jumped 11% to $17.9 billion in due to rising compensation costs, the bank said. That was more than the $17.63 billion estimate from analysts polled by FactSet.

JPMorgan executives have previously spoken of the need to invest in technology and compensate employees after a booming year on Wall Street; Still, analysts can question management on the trajectory of spending this year.

“JPMorgan’s results were surprisingly weak and were hampered by unusually poor expense management,” Octavio Marenzi, CEO of consulting firm Opimas, said in an emailed statement.

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

JPMorgan chief operating officer Daniel Pinto told a conference last month that fourth-quarter trading revenue was heading for a 10% decline, due to a drop in bond activity. from record highs.

Trading revenue slowed a little more than that, falling 11% to $5.3 billion in the quarter, the bank said. This is largely due to a slowdown in bond trading desks. The investment bank contributed to a 37% increase in fees.

The bank was forced to pay $200 million in fines last month to settle charges that its Wall Street division allowed workers to use messaging apps to circumvent record-keeping laws.

Analysts may also question the bank on the impact of its recent decision to limit overdraft fees. JPMorgan said last month it would give customers a grace period to avoid punitive fees, a move that, along with other changes, will have a “significant” impact on revenue.

Shares of JPMorgan soared 6.2% this year before Friday, trailing the 11.6% rise in the KBW banking index.

This story is developing. Please check for updates.

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