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Jan 14, 2020

JPMorgan's trading surge helps fuel most profitable year ever

JPMorgan's fixed-income trading a 'blowout' in fourth quarter


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JPMorgan Chase & Co. just posted the best year for any U.S. bank in history.

Fuelled by a rebound in trading, especially in fixed income, the company said profit jumped 21 per cent in the fourth quarter, pushing annual earnings to a record US$36.4 billion. The announcement led off this week’s round of industry profit reports on a high note, though analysts are predicting results for 2020 will come back down to earth.

Fixed-income trading revenue came in US$1 billion higher than analysts predicted as the bank benefited from an active final few weeks of the year and gains in securitized products and rates. It marked a stark comeback from last year’s fourth quarter, when wild market swings kept clients on the sidelines and JPMorgan’s bond-trading unit posting its lowest revenue since the financial crisis.

“While we face a continued high level of complex geopolitical issues, global growth stabilized, albeit at a lower level, and resolution of some trade issues helped support client and market activity towards the end of the year,” Jamie Dimon, the bank’s chief executive officer, said in a statement.

The biggest U.S. bank generated US$4.95 billion in trading revenue in the quarter, a 56-per-cent increase that was better than analysts expected. That marked the best fourth quarter for the firm’s trading desks in more than a decade.

In December, JPMorgan Chief Financial Officer Jennifer Piepszak told investors to expect better performance for the last three months of 2019, thanks to gains in the fixed-income business.

The corporate and investment bank, led by Daniel Pinto, has been investing in technology to shift more trading of fixed-income assets such as currencies and commodities to electronic platforms. It’s also been hiring investment bankers to boost the bank’s market share in select regions and sub-sectors, and is experimenting with blockchain technology to try to speed up payments between corporate customers.

Still, after the best year for bank stocks in more than two decades, investors are starting to question how much longer the era of record profits can go on. Analysts at UBS Group AG last week cut their outlook on shares of JPMorgan to neutral, citing a “high bar for further outperformance.”

JPMorgan, which plans to host an investor day next month, didn’t provide any annual targets for 2020. The company said it expects net interest income of about US$14 billion in the first quarter.

• Fourth-quarter net income rose to US$8.52 billion, or US$2.57 a share, from US$7.07 billion, or US$1.98, a year earlier. That beat the US$2.36 average estimate of 23 analysts surveyed by Bloomberg.

• The firm’s consumer-banking unit posted a three-per-cent increase in revenue as investments to open up branches in new states started to yield returns.

• Net charge-offs surged 21 per cent to US$1.49 billion from US$1.24 billion a year earlier.

• The bank generated US$14.2 billion of net interest income, bringing the full-year metric to US$57.2 billion, slightly below the bank’s guidance of US$57.5 billion.