JPMorgan Shares Rise on Surprise Drop in Capital Surcharge

  • Adjusted earnings of $1.34 a share beat analysts' estimates
  • Capital buffer gets benefit from balance-sheet reductions

JPMorgan 4Q Profit Rises 10%: Inside the Numbers

JPMorgan Chase & Co. rose in New York trading after reporting earnings that beat analysts’ estimates and a smaller impact on capital from regulations that threatened to put the company at a disadvantage compared with other banks.

The shares climbed 1.5 percent to close at $58.20, paring its decline this month to 12 percent.

JPMorgan said its surcharge for global systemically important banks -- a closely watched measure that will determine its required capital ratio -- fell to 3.5 percent after the company cut client deposits and reduced derivatives. A year ago the bank said it could be as high as 5 percent. An insignificant amount of revenue was sacrificed to whittle down the surcharge, Chief Financial Officer Marianne Lake told reporters Thursday.

“These improvements dramatically improve its outlook to successfully pass” a future Federal Reserve stress test while maintaining or increasing the return of capital to shareholders through buybacks or dividends, Eric Wasserstrom, an analyst at Guggenheim Securities LLC, said in a research note. Steven Chubak, an analyst at Nomura Holdings Inc., called the G-SIB reduction a positive surprise on a conference call.

Fourth-quarter net income rose to $5.43 billion, or $1.32 a share, from $4.93 billion, or $1.19, a year earlier, according to a statement Thursday from New York-based JPMorgan. Earnings excluding litigation costs, accounting adjustments and a tax benefit were $1.34 a share, beating the $1.27 average estimate of 29 analysts surveyed by Bloomberg. The bank earned $24.4 billion for 2015, a second-straight annual record.

Wall Street firms are under pressure to cut costs as revenue from fixed-income trading slumps. Lake said last month that the quarter had been quiet for bond and equity markets, adding that the Federal Reserve’s Dec. 16 interest-rate increase could provide a boost in 2016. The company had only $99 million in litigation costs after getting $318 million from the U.S. government tied to its acquisition of Washington Mutual Inc. assets. That compared with $990 million in legal expenses a year earlier.

“Expense discipline was impressive,” Richard Ramsden, a Goldman Sachs Group Inc. analyst, said in a note, adding that capital-markets results “were modestly better than expected.”

Revenue, Expenses

Revenue rose 1 percent to $22.9 billion in the fourth quarter and non-interest expenses fell 7 percent to $14.3 billion. Revenue on a managed basis, which includes tax adjustments, was $23.7 billion, beating analysts’ estimates. The number of employees declined to 234,598, a drop of 3 percent.

Earnings at the corporate and investment bank surged 80 percent to $1.75 billion, driven by the lower legal expenses. Revenue slipped 4 percent from a year earlier to $7.1 billion on declines in trading and investment banking. While fixed-income trading revenue dropped 3 percent to $2.57 billion on lower commodities and credit activity, the results exceeded estimates by Matthew Burnell of Wells Fargo & Co. and Susan Roth Katzke of Credit Suisse Group AG. Equity-trading revenue declined 7 percent to $1.06 billion.

“In the fourth quarter we talked about client activity being very light, risk was off, so our risk was low and our balance sheet was conservatively constructed going into year-end,” Lake told reporters. “Trading year-to-date has performed well.”

Investment-banking revenue fell 11 percent to $1.47 billion on a drop in debt-issuance revenue, which plunged 43 percent to $602 million amid declines in high-yield debt. Merger-advisory fees rose 43 percent to $622 million and equity underwriting slipped 4 percent to $314 million.

Profit from consumer and community banking rose 10 percent to $2.41 billion. Revenue from mortgage fees and related income increased 2 percent to $11.2 billion, fueled by higher card and auto results.

Credit quality across card and commercial lending businesses “is as good as it’s ever been,” Chief Executive Officer Jamie Dimon said on a conference call with analysts. “The U.S. economy looks pretty good at this point.”

Citigroup Inc., the third-biggest U.S. bank by assets, and Wells Fargo & Co., the top U.S. mortgage lender, are scheduled to report results Friday. Bank of America Corp., Morgan Stanley and Goldman Sachs Group Inc. will report next week.

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