JPMorgan Posts Investment-Banking Surge While Loans Decline

(Bloomberg) -- JPMorgan Chase & Co.’s dealmakers just helped usher in the firm’s best quarter on record, but shares fell as the bank warned that loan demand remains tepid.

Investment-banking fees soared 57%, beating analysts’ estimates and boosting net income to $14.3 billion, the most JPMorgan has ever earned in a single quarter, according to a statement Wednesday. A larger-than-expected reserve release added to the windfall as the bank determined it didn’t need as much socked away for future loan losses.

Government stimulus programs and potentially massive infrastructure spending mean “the economy has the potential to have extremely robust, multiyear growth,” Chief Executive Officer Jamie Dimon said in the statement.

Dimon said loan demand is still “challenged” but, on a subsequent conference call with journalists, he said he “made a mistake” in using that word. “What’s happened is the consumer has so much money they’re paying down their credit-card loans, which is good,” he said. “This is not bad news about loan demand, this is actually good news.”

The CEO said last week in his annual letter to shareholders that he’s optimistic the pandemic will end with a U.S. economic rebound that could last at least two years. He pointed to an “extraordinary” amount of spending power from both consumers and corporations as the country opens back up.

Still, investors are keen for signs that banks will soon expand their loan portfolios. Across the industry, credit-card balances have been dwindling and deposits soaring as a result of trillions of dollars of stimulus. Businesses have also been reluctant to borrow until the pace of the economic recovery becomes clearer.

JPMorgan expects a pickup in consumer and small-business loan demand in the second half, Chief Financial Officer Jennifer Piepszak said on a conference call with analysts. Commercial-loan demand is muted and “probably will be for some time,” she said. “But, again, that’s incredibly healthy ultimately for the recovery.”

At JPMorgan, loans fell 4% from a year earlier, driven by a 14% drop in card loans. Shares of the company slipped 0.7% to $153.04 at 10:06 a.m. in New York.

Investment Banking

Investment-banking fees jumped to $2.99 billion, topping the $2.59 billion analysts were expecting. The bank posted a $5.2 billion reserve release, a metric Dimon said he doesn’t consider “core or recurring profits.” Piepszak said the bank expects more reserve releases because the forecast is for a robust economic recovery in the second half.

Equity underwriting more than tripled to $1.06 billion, beating expectations as JPMorgan rode the wave in activity driven in part by a slew of special purpose acquisition companies that went public in the first quarter. The New York-based bank ranked 10th by volume in SPAC underwriting for the period, and fifth for global equity underwriting overall. Analysts had predicted the trend would boost revenue 176% in the first quarter for the five biggest U.S. banks.

The bank’s traders generated $9.05 billion of revenue in the first quarter, up 25% from a year earlier and exceeding analysts’ expectations. That included a 47% increase in equities and a 15% jump in fixed income. Trading revenue remained elevated after a banner year as the coronavirus pandemic roiled markets and sent volatility soaring.

The firm increased its full-year 2021 adjusted expense outlook to $70 billion, from $69 billion expected in February. Non-interest expenses were $18.7 billion in the first quarter, up 12% from a year earlier.

Dimon and Piepszak again discussed JPMorgan’s appetite for acquisitions, a point that was punctuated last week when Dimon wrote in his letter that “acquisitions are in our future.” The CEO echoed previous comments that he prefers to use JPMorgan’s extra cash to invest in the business, rather than on share repurchases.

“We’re buying back stock because our cup runneth over,” Dimon said. “We’re earning a tremendous sum of money and we really have no option right now. But I think the door’s open to anything that makes sense.”

Also in JPMorgan’s first-quarter earnings:

• Net interest income was $12.9 billion, down 11% from a year earlier. The firm’s outlook for 2021 NII is about $55 billion.
• Total revenue was $32.3 billion in the first quarter, up 14% from a year earlier.
• The overhead ratio, a measure of profitability, was 58% in the quarter, up from 55% in the fourth quarter.

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