JPMorgan Chase shares dipped Friday after the bank posted its smallest quarterly earnings beat in nearly two years and the lender’s CFO lowered guidance on companywide returns.
Here are the numbers:
- Earnings: $3.33 a share, vs. estimate $3.01, according to Refinitiv.
- Revenue: $30.35 billion, vs. estimate $29.9 billion.
Higher-than-expected expenses drove a 14% decline in fourth quarter profit to $10.4 billion, while revenue was nearly unchanged at $30.35 billion. JPMorgan said in its release that it took a $1.8 billion net benefit from releasing reserves for loan losses that never materialized; without that 47 cent per share boost, earnings would have been $2.86 per share.
Shares of the bank dropped 6.2%.
CFO Jeremy Barnum told reporters on a conference call that management expected “headwinds” of higher expenses and moderating Wall Street revenue to cause the company’s returns to dip from recent years. That means it’s likely the bank will miss the firm’s 17% target for returns on capital, he said.
“Over the next one to two years, we expect to earn modestly below that target as the headwinds likely exceed the tail winds,” Barnum said, adding that the goal is still valid over the “medium term.”
JPMorgan will see expenses climb 8% to about $77 billion in 2022, Barnum added, driven by “inflationary pressures” and $3.5 billion in investments.
When asked if a tight labor market was forcing JPMorgan to pay its personnel more, Barnum had this response: “It is true that labor markets are tight, that there’s a little bit of labor inflation, and it’s important for us to attract and retain the best talent and pay competitively according to performance.”
Nevertheless, the bank will benefit from the rising interest rates and loan growth that have attracted investors to the financial industry in recent months. Net interest income is likely to hit roughly $50 billion this year, a gain of $5.5 billion from 2021 on the anticipated rates and “high single-digit” loan growth, Barnum said.
After setting aside billions of dollars for loans losses earlier in the Covid pandemic, JPMorgan has benefited as it steadily released the funds as borrowers held up better than expected. Still, CEO Jamie Dimon has said he doesn’t consider the accounting benefit a core part of business results. Even when including the boost, JPMorgan posted the smallest earnings beat in the past seven quarters.
“The economy continues to do quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks,” Dimon said in the release. “Credit continues to be healthy with exceptionally low net charge-offs, and we remain optimistic on U.S. economic growth.”
While companywide revenue rose 1% in the fourth quarter as a slowdown in markets was offset by robust investment banking fees, noninterest expenses shot up 11% to $17.9 billion on rising compensation costs, the bank said. That was higher than the $17.63 billion estimate of analysts surveyed by FactSet.
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Read More: JPM earnings 4Q 2021