CHARLOTTE, N.C. – JPMorgan Chase & Co., the nation's largest bank by assets, said its fourth quarter profits jumped by 42% from a year earlier, as the firm's investment banking division had a stellar quarter and its balance sheet improved despite the pandemic.
The New York-based bank said it earned a profit of $12.14 billion, or $3.79 per share, up from a profit of $8.52 billion, or $2.57 per share, in the same period a year ago. Excluding one-time items, the bank earned $3.07 a share, which is well above the $2.62 per share forecast analysts had for the bank.
The one-time item was JPMorgan “releasing” some of the funds it had set aside last year to cover potential loan losses caused by the coronavirus pandemic and subsequent recession. Banks had set aside tens of billions of dollars to cover potentially bad loans, and JPMorgan had been particularly aggressive in setting aside funds early in the pandemic.
Releasing those funds goes straight to a bank's bottom line when it reports its results, but it's not money that the bank generated from loans, customers or borrowers. It's just funds that were effectively put into escrow and are no longer in escrow.
The release reflects improvement in the economy — though it's still not fully recovered from the shutdowns of March and April — and the trillions of dollars in stimulus funds that have flowed to individuals and businesses.
One sign of that could be seen in the bank reporting incrementally lower credit card and auto loan revenues, largely due to borrowers paying down balances the bank said.
But the $2.9 billion release is only a fraction of what JPMorgan set aside last year, and with the pandemic raging across the globe and particularly here in the U.S., it's uncertain how much more the bank will release in the coming months.
“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty,” said JPMorgan CEO Jamie Dimon in a statement.
The driver of JPMorgan's profits this quarter was the investment banking business. The corporate and investment bank posted a profit of $5.35 billion compared with $2.94 billion in the same period a year earlier. JPMorgan said it saw higher investment banking fees — money banks collect to advise companies on going public or buying other companies — as well as higher fees from its trading desks.