By Emily Glazer
JPMorgan Chase & Co. said Friday that its fourth-quarter
profit fell from a year earlier because of one-time charges related
to the recently passed tax overhaul, while earnings excluding that
impact were roughly flat.
Shares rose about 1% in morning trading.
The biggest U.S. bank by assets reported net income of $4.23
billion, or $1.07 a share. That is down nearly 40% from a year
earlier because of a $2.4 billion charge related to the new tax
law. Excluding that charge, the bank said, earnings per share were
$1.76, up nearly 3% from a year ago, led by solid performance in
its consumer bank and commercial bank.
Analysts polled by Thomson Reuters had expected earnings of
$1.69 a share. On a reported basis, or under generally accepted
accounting principles, earnings per share were expected at $1.16,
reflecting the tax-law charges.
The impact from the tax overhaul is "a big significant positive
and much of it will fall to our bottom line in 2018 and beyond,"
Chief Executive James Dimon said on a call with analysts.
Revenue was $24.15 billion, up 3% from the year-earlier
period.
JPMorgan's corporate and investment bank had the biggest impact
from the tax law. Its trading revenue decreased 34% to $3.37
billion from $4.52 billion a year earlier. A bank spokesman said
the bank's adjusted trading revenue would've been down about 17%
excluding the impact of the tax law and losses of as much as $273
million related to a single client.
That client is Steinhoff International Holdings NV, which owns
U.S. mattress company Mattress Firm Inc., Finance chief Marianne
Lake confirmed. Mattress Firm recently obtained a new line of
credit as it worked to reduce concerns among suppliers and
customers while Steinhoff is dealing with a wide-ranging accounting
probe.
JPMorgan reported a $143 million loss on a margin loan related
to Steinhoff as well as credit costs of $130 million driven by a
reserve build for the same client.
Ms. Lake said the impact was through a syndicated facility
JPMorgan participated in and that other bank peers in that facility
may have also had credit losses.
Wall Street was expecting a soft trading quarter after
executives at a number of banks said it had remained subdued, a
source of concern for firms for much of 2017.
The tax charges were largely expected after Ms. Lake said during
an early December investor conference -- before the tax bill passed
-- that JPMorgan could have a one-time hit of as much as $2 billion
in the fourth quarter if the law was enacted in 2017.
Charges related to changes in the value of the bank's deferred
tax assets and the need to repatriate profits held overseas. Such
charges could reduce the earnings the bank reports, although
investors are likely to look to the core operating results since
these hits will be one-time in nature.
Mr. Dimon said the bank will take the roughly $3 billion tax
benefit next year but cautioned that the tax code still has to be
written, so there are uncertainties ahead. He said the bank "may
accelerate" some hiring in new bankers and will give more detail at
its Investor Day presentation in February.
Ms. Lake said the bank is in the process of putting together a
"cohesive and comprehensive set of long-term sustainable actions
for our employees, for customers and the community" in response to
tax reform that it will share more in the coming weeks. That could
include subsidies to low-income borrowers.
Return on equity, a measure of profitability, was 7% in the
fourth quarter compared with 11% a year ago.
The boost from still low -- but rising -- interest rates will
also likely be a focus for investors, as an increase in rates can
help the profitability of big consumer lenders such as
JPMorgan.
JPMorgan extended $24.4 billion in mortgages in the quarter, a
decrease of 16% from the $29.1 billion the bank extended in the
fourth quarter a year ago. Revenue in its mortgage division, one of
the largest in the U.S. by volume, was $1.44 billion, down 15% from
the $1.69 billion it reported in the year-earlier period.
Overall profit at the corporate and investment bank was $2.32
billion, a 32% decrease from $3.43 billion in the same period last
year. In the consumer bank, profits were $2.63 billion compared
with $2.36 billion in the fourth quarter a year ago.
JPMorgan's commercial bank earned a record $957 million, a 39%
increase from the $687 million it earned in the year-ago quarter,
and the bank's asset and wealth management unit reported profits of
$654 million compared with $586 million in the fourth quarter of
2016.
JPMorgan set aside $1.35 billion in the fourth quarter to cover
loans that could potentially turn bad in the future. That compares
with $1.46 billion in the third quarter of 2017 and $896 million in
the fourth quarter of 2016. The bank lost $1.22 billion to loan
defaults, or 0.57% of its overall portfolio, compared with a 0.58%
charge-off rate in the third quarter of 2017.
Costs increased to $14.59 billion from $13.83 billion a year
earlier. Ms. Lake said during a December investor presentation that
the bank expects the "absolute dollars to continue to grow" based
on several factors and that JPMorgan continues to look for
opportunities to make "strategically good investments."
The bank had a legal cost benefit of $207 million in the fourth
quarter, compared with a benefit of $148 million in the third
quarter and $230 million a year earlier.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
January 12, 2018 10:44 ET (15:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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