JPMorgan cuts loan reserves on recovery hopes

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By Anirban Sen and David Henry

(Reuters) – JPMorgan Chase & Co reported better-than-expected quarterly profit on Friday as it released some of the money it had accumulated against loan losses caused by coronaviruses, although the bank warned that loan demand is likely to remain sluggish this year.

For most of last year, Main Street lenders grappled with the economic fallout from the pandemic, setting aside tens of billions of dollars to cover potential defaults by struggling businesses and households.

But rapid vaccine deployments and nearly $ 2 trillion in stimulus have raised hopes of a recovery from one of the worst downturns in decades, prompting banks to start unwinding some of their debt. massive reserves for loan losses.

“You will have a better economy in the second semester [of the year] because we have the vaccine coming, we have fiscal stimulus and people have saved a lot of money, ”JPMorgan CEO Jamie Dimon said.

“There will be a lot of pent-up demand and hopefully optimism as we go through this mess. By this summer you could have a very healthy economy.”

JPMorgan CFO Jennifer Piepszak said the bank had the capacity to repurchase up to $ 4.5 billion in shares in the first quarter, in line with regulatory limits based on income from capital cuts.

The pandemic also caused a fall in short and long-term interest rates that hurt interest income, but the Wall Street branches of the biggest banks took advantage of volatility in global financial markets, the rush towards stock quotes and emergency business fundraising.

JPMorgan’s net income rose 42% to $ 12.1 billion, or $ 3.79 per share, in the quarter ended Dec.31. Revenue rose 3% to $ 30.2 billion. During the quarter, it freed up $ 2.9 billion in credit reserves, adding 72 cents to earnings per share.

Excluding reserves, the bank reported net income of $ 9.9 billion, or $ 3.07 per share, which was well above the Wall Street average estimate of $ 2.62 per share, according to Refinitiv.

About 70% of JPMorgan’s pace came from reserve builds and much of the benefits were already built into its action, said Glenn Schorr, Evercore ISI analyst.

Analysts called the results strong, given low interest rates and business challenges during the pandemic. “These are strong results and the economic outlook is improving,” Schorr wrote in a note to clients.

In the last quarter, JPMorgan’s numbers were also boosted by continued strength in its trading and investment banking units.

The investment bank’s revenues jumped 37% to $ 2.5 billion, thanks to higher advisory fees on all of its products. Trading revenues increased 20% to $ 5.9 billion.

Looking ahead, JPMorgan said in a slide presentation to analysts that it expects its non-interest spending to increase in 2021 to around $ 68 billion from $ 65.5 billion because She invests an additional $ 1.5 billion in her business and spends an additional $ 900 million on her technology.

The spending plan continues JPMorgan’s practice of using its financial clout as America’s largest bank to grow its business and gain market share from other lenders as it struggles to push back its non-bank competitors.

ATTENTION NOTE

Still, JPMorgan chief Dimon warned of “significant near-term uncertainty” and said the withdrawal from reserves did not represent “core or recurring profits,” while other senior executives have said. warned that comparisons with 2020 would be “difficult”, due to record market performance during the year.

Shares of JPMorgan, Citigroup Inc and Wells Fargo & Co, which had seen a strong rally on the earnings outlook, were all lower early in the session even as they posted better-than-expected earnings.

The Federal Reserve’s near-zero interest rates led to a record reduction in net interest margins in 2020 – the difference between what banks charge for loans and what they pay depositors.

JPMorgan’s net interest income fell 7% to $ 13.4 billion.

Interest indicators are closely watched by investors to show how much central bank policies affect income and how well banks manage their balance sheets.

The bank’s other reporting lines held up well during the quarter. Three of JPMorgan’s four business units recorded higher revenues, with the personal and corporate banking unit dropping 8%.

Trading income surged as the bank took advantage of volatile financial markets as investors reassessed their portfolios at year-end.

(Reporting by Anirban Sen in Bengaluru and David Henry in New York; Editing by Saumyadeb Chakrabarty)

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