JPM JP Morgan Chase and Co

By Peter Rudegeair and Emily Glazer 

JPMorgan Chase & Co. said Tuesday that fourth-quarter profit rose by two-thirds despite a volatile trading environment.

Shares fell around 1.7% in morning trading after the results were announced.

The bank reported a profit of $7.07 billion, or $1.98 a share. Analysts polled by Refinitiv had expected earnings of $2.20 a share. Before this quarter, JPMorgan had beat analysts' estimates in every period for nearly four years, according to research from Barclays PLC.

JPMorgan's trading revenues decreased 5.7% to $3.17 billion from about $3.37 billion a year earlier. That was better than the 14% drop Citigroup reported yesterday in that business. JPMorgan's fixed-income trading revenue fell 16%, while its equities trading revenue rose 15%.

Banks enjoy relatively wide spreads -- or gaps in price between where they buy and sell -- on trades in interest-rate swaps, corporate credits, commodities and other fixed-income instruments. But the abrupt market swings and falling prices that characterized many of those markets toward the end of 2018 prompted many clients of bank trading desks to sit out the volatility, which hurt earnings.

"People closed down for the year" in December, said Marianne Lake, JPMorgan's finance chief, on a conference call with reporters. "We saw a pretty sharp selloff across products."

CEO James Dimon said on the same conference call that a healthy U.S. economy boosted the bank's business in the fourth quarter but warned that a protracted government shutdown could alter the outlook.

A lengthy shutdown "is not going to help the economy," Mr. Dimon said, relaying an estimate the a shutdown lasting through the first quarter could send economic growth to zero.

Meanwhile, bank results continue to be affected by what happens with interest rates. Federal Reserve officials earlier this month laid the groundwork to pause raising short-term interest rates. Though an increase in rates can help the profitability of big consumer lenders like JPMorgan, they can crimp mortgage lending and force banks to pay more to depositors.

Higher interest rates boosted JPMorgan's consumer bank. Profit was $4.03 billion in the fourth quarter, up 53% from $2.63 billion in the year-earlier period, driven largely by higher lending margins and an increase in credit-card balances.

Yet the bank's mortgage business struggled. JPMorgan extended $17.2 billion in mortgages in the quarter, a decrease of 30% from the $24.4 billion in the year-earlier period. Revenue in its home lending division, one of the largest in the U.S. by volume, was $1.32 billion, down 8% from the $1.44 billion.

Overall profit in the corporate and investment bank was $2.0 billion, a roughly 15% decrease from $2.32 billion in the same period of 2017. JPMorgan's commercial bank earned $1.0 billion, an 8% increase from the last three months of 2017, and the bank's asset and wealth management unit reported profits of $604 million compared with $654 million a year earlier.

JPMorgan set aside $1.5 billion in the quarter to reserve against loans, especially ones in its credit-card and commercial portfolios, that could potentially turn bad in the future. That compares with $968 million in the third quarter of 2018 and $1.35 billion in the fourth quarter of 2017. The bank lost $1.2 billion to loan defaults, or 0.53% of its overall portfolio, compared with a 0.57% charge-off rate in the fourth quarter of 2017.

Costs increased 6% to $15.7 billion from $14.9 billion a year earlier. For the year, they came in at $63.4 billion. Ms. Lake said in September that the bank's 2018 expenses likely would be close to $63.5 billion, up from the $63 billion it projected at its annual investor day presentation in February. The rise was largely revenue related, dealing with transaction costs and brokerage clearing in addition to performance incentives, she said.

JPMorgan recorded a legal benefit of $18 million in the fourth quarter, compared with legal costs of $20 million in the third quarter of 2018 and a benefit of $207 million a year earlier. In late December, the bank agreed to pay $135 million to settle claims that it improperly handled thousands of transactions involving foreign-company stock as part of a wide-ranging probe of misconduct in the market.

Return on equity, a key measure of profitability, was 12% in the fourth quarter compared with 7% a year ago.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

January 15, 2019 11:07 ET (16:07 GMT)

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