By David Benoit and Ben Eisen
America's top bankers signaled the economic recovery has held up
better than they expected and should continue in the new year,
releasing some of the stockpiles of cash they had set aside for a
wave of soured loans.
JPMorgan Chase & Co. posted a record quarterly profit while
Citigroup Inc. and Wells Fargo & Co. both posted
higher-than-expected earnings in the final three months of the
year, boosted by the reserve releases and Wall Street's
The period capped a tumultuous 2020, when a sharp decline in
economic activity in the spring gave way to an uneven recovery that
has lifted some consumers and businesses while many others continue
Executives said they have grown more confident that vaccines
will get people back to work and that fresh stimulus -- and the
potential for more under President-elect Joe Biden -- will help
consumers and businesses this year. But they stopped short of
saying the economy is out of the woods, and their balance sheets
continue to reflect a deep concern about the health of their
Bankers warned that losses on credit cards, real-estate loans
and other types of debts are still likely to rise when government
relief programs eventually wear off, hitting their lowest-income
customers in particular.
And there are signs that the recovery remains fragile. The
government reported Friday that U.S. consumers cut back on retail
spending in December, the peak of the holiday season. Coronavirus
cases and deaths are rising rapidly. Jobless claims jumped to
nearly 1 million last week. Workers in low-paid jobs, including at
restaurants and bars, have been hit particularly hard.
"You have a cloudy next two quarters, mixed economic
information, almost 4,000 people dying a day," JPMorgan Chief
Executive Jamie Dimon said on a call with reporters. "Hopefully by
some time in the summer you can have a very healthy economy."
The period continued the year's divergence of consumer and Wall
Street operations. At JPMorgan and Citigroup, traders and
investment bankers churned out stocks and bonds for clients eager
to raise capital and trade securities.
Profit at the corporate and investment banking divisions jumped
82% at JPMorgan and 27% at Citigroup, their best fourth quarters on
record. A flurry of new blank-check companies boosted
equity-underwriting fees at JPMorgan and Citigroup by more than
But revenue fell at all three firms' consumer banks -- down 8%
at JPMorgan, 14% at Citigroup and 5% at Wells Fargo.
Still, the latest quarter reflects an improving view of the
broader economy. Three months ago, Citigroup based its loan outlook
on expectations that the U.S. economy would shrink 5.1% in 2020 and
the unemployment rate would average 6.6% a quarter over the next
two years. Now, the expectation is for GDP to have dropped 4.0% and
for the jobless rate to average 6.1%.
"While we hope the end is in sight, this virus has surprised us
and taught us the folly of best-laid plans," said Jane Fraser, who
is set to become Citigroup's CEO next month. "So we will remain
vigilant and adaptable."
Banks also haven't had to take losses on bad loans at nearly the
pace initially feared. In fact, all three said that charge-offs
were lower in the fourth-quarter than in the year-earlier period,
before the pandemic brought the economy to a halt.
JPMorgan said it pulled $2.9 billion out of its reserves and
Citigroup released $1.5 billion. Wells Fargo pulled $757 million,
though it was largely because it sold off a book of student loans.
They have continued to hold on to the vast majority of their
reserves, fearing that some loan losses are just being pushed
further into the future.
"The performance is substantially better than we would have
thought when we went into this," Wells Fargo CEO Charles Scharf
said on a call with analysts. But he added that in order to
substantially draw down reserves, he would like to see a "more
sustained and more equitable recovery because so many uncertainties
Mr. Dimon noted the wide divergence between those who can
navigate the coronavirus economy and those who can't. For many big
businesses, 2020 was a surprisingly good year. Many families,
meanwhile, are close to running out of money.
One reason the banks have weathered the coronavirus economy is
that they have been focusing on well-off consumers and big
businesses since the financial crisis. Mr. Dimon noted that most of
JPMorgan's customers are prime borrowers, who have "a lot more
income, a lot more savings, housing prices are up, they did not
lose their jobs." At the bottom of the pyramid, "it's the
All three banks exceeded analysts' per-share earnings
expectations in the fourth quarter, but JPMorgan stood above the
others, largely thanks to the size of its trading and
Revenue rose 3% at JPMorgan, beating expectations. Revenue fell
10% at both Citigroup and Wells Fargo, missing expectations.
JPMorgan's fourth quarter profit surged 42% to a record $12.14
billion, while Citigroup's profit fell 7% to $4.63 billion and
Wells Fargo's rose 4% to $2.99 billion.
Write to David Benoit at firstname.lastname@example.org and Ben Eisen at
(END) Dow Jones Newswires
January 15, 2021 13:35 ET (18:35 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.