JPMorgan Chase & Co. reported a 14% fall in fourth-quarter earnings on Friday but sailed past analysts' estimates, helped by a stellar performance at its investment banking unit that offset a slowdown in its trading arm.
The country's largest lender, whose fortunes are often seen as a barometer of the health of the U.S. economy, posted a 28% jump in investment banking revenue, while overall trading revenue fell 13%.
Large U.S. lenders have benefited from higher consumer spending, while their trading arms gained from exceptional volatility in financial markets last year.
Upcoming Challenges to Banking Sector
However, soaring inflation, a potential omicron-induced economic slowdown and trading revenues returning to normal levels after an exceptional year are set to challenge the banking industry's growth in the coming months.
JPMorgan's shares, up 6% this year, slipped 3% in trading before the bell on Friday.
"The economy continues to do quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks," JPMorgan Chief Executive Jamie Dimon said.
"We remain optimistic on U.S. economic growth as business sentiment is upbeat and consumers are benefiting from job and wage growth."
The trading shortfall in the forth quarter was cushioned by yet another strong showing at its investment bank as global mergers and acquisitions activity shattered all-time records in 2021 and pushed investment banking fees to a record-high in the first half of the year.
Wall Street banking remained strong for most of the past year, as large, cash-flush financial sponsors and corporates embarked on a dealmaking spree, helping drive up investment banking fees to their highest-ever levels.
World's No. 2 M&A Advisor
During the quarter, JPMorgan maintained its position as the banking world's second-biggest provider of worldwide M&A advisory after Goldman Sachs, according to Refinitiv. The league tables rank financial services firms by the amount of M&A fees they generate.
Overall, the lender posted a profit of $10.4 billion, or $3.33 per share, in the quarter ended Dec. 31. Analysts had estimated a profit of $3.01 per share, according to Refinitiv data.
Revenue remained nearly flat at $30.3 billion. The bank's earnings were also buoyed by reserve releases of $1.8 billion.
During the quarter, JPMorgan took down more funds that it had set side during the height of the pandemic in anticipation of an expected wave of loan defaults.
But that didn't happen, thanks to a consumer-friendly monetary policy and government stimulus checks that buoyed consumer spending, allowing banks to release billions from their loan-loss reserve.
Citigroup will report results later on Friday. Wells Fargo & Co reported an 86% jump in fourth-quarter profit on Friday, propped up by gains from the sale of its corporate trust and asset management businesses.
Goldman Sachs, Wall Street's premier investment bank, will report earnings on Tuesday, while Morgan Stanley and Bank of America round out the earnings season on Wednesday.
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