JPMorgan kicked off earnings season Friday, with Wall Street’s five largest banks on track to log $100 billion in trading revenue for the first year in a decade.
The largest US bank reported adjusted revenue of $30.16 billion, up 3.3% YoY. That was ahead of estimates. The market was looking for $28.65 billion. The range was $26.42 billion to $29.91 billion.
Q4 net income was up 42% to $12.1 billion, or $3.79 per share. That looks like a beat, and it is, but some of it is attributable to a credit reserve release of $2.9 billion. Excluding that, EPS would have been $3.07 per share. The bank thanks “an improvement in macroeconomic scenarios and the continued ability of clients to access liquidity and capital markets” for reserve releases.
Jamie Dimon called the results “strong” and characterized 2020 as “a challenging year.” It was most assuredly challenging for the world and especially for Main Street. For Wall Street, it meant outsized gains in trading. For JPMorgan specifically, 2020 brought record revenue.
JPMorgan’s markets business, where revenue jumped nearly 50% in 2020 through the third quarter, was solid in Q4. Revenue was $5.9 billion in the quarter, up 20%. Including securities services, it was $7.2 billion.
FICC revenue of $3.95 billion was up 15% YoY, but the beat to consensus was small. Essentially, FICC was in-line with expectations. In equities, revenue of $1.99 billion represented a 32% YoY jump. The bank cited strong client activity in derivatives and Cash Equities. The market was looking for $1.79 billion there, so that’s a decent beat.
Late in November, the bank’s traders were said to be disappointed at the prospect of a 20% boost to annual bonuses, considering the outsized profits they generated in a virus-blighted year during which trading desks flourished despite (and, in some respects, because of) the malaise on Main Street.
“At peak moments, JPMorgan’s foreign-exchange desk executed 730 trades per second while corporate bond traders grew accustomed to trading hundreds of millions of dollars of debt in a single day,” Bloomberg wrote late in November.
In CIB, IB fees of $2.56 billion in Q4 were up 34% YoY, and easily beat estimates.
Net interest income is seen at roughly $13.6 billion in the first quarter and $55.5 billion for 2021, against estimates for $13.25 billion and $53.62 billion, respectively.
Dimon cautioned on the near $3 billion reserve takedown mentioned above. “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.
That’s not generally the kind of commentary the market likes to hear, even as it’s certainly understandable given the environment.
“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty,” Dimon went on to say, noting that the cushion “allow[s] us to withstand an economic environment far worse than the current base forecasts by most economists.”
That’s a good thing. Because while we’d all like to think vaccine rollout will proceed apace, it’s already behind schedule. And there are no guarantees about how quickly Joe Biden’s new stimulus proposal will get through Congress and, when it does, what it will look like by the time everyone has had a chance to take a red marker to it.