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. 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 a statement. But, he said, loan demand is still “challenged.”

Dimon 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.

At JPMorgan, loans fell 4% from a year earlier, driven by a 14% drop in card loans. Shares of the company slipped 0.8% to $152.90 at 7:48 a.m. in early New York trading.

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 is not considered “core or recurring profits.”

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.

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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