Finance

JP Morgan earnings crush analysts' estimates as bond trading revenue surges by nearly 90%

Key Points
  • J.P. Morgan Chase posted profit and revenue that exceeded analysts' expectations on a surge in fourth-quarter trading revenue.
  • CEO Jamie Dimon said the investment bank produced record fourth-quarter revenue.
  • Bond trading revenue surged 86% to $3.4 billion, exceeding the $2.61 billion estimate by roughly $800 million, as fixed-income desks were humming, particularly in securitized products and rates.
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JP Morgan Chase Q4 earnings: $2.57 a share, vs $2.35 EPS expected

J.P. Morgan Chase posted profit and revenue that smashed through analysts' expectations on a strong rebound in trading revenue at the end of 2019.

The bank said Tuesday that fourth-quarter profit rose 21% to $8.52 billion, or $2.57 a share, compared with the $2.35 estimate of analysts surveyed by Refinitiv. Managed revenue climbed 9% to $29.2 billion, compared with the $27.94 billion estimate. Shares of the bank gained 2.1% in midday trading. 

CEO Jamie Dimon said the investment bank produced record revenue for a fourth quarter, aided by the rebound in trading revenue from a challenging period a year ago. The strong results in trading helped offset the impact of compressed margins across retail and commercial banking businesses as interest rates dropped.

Profit in the investment bank climbed 48% to $2.9 billion, mainly on trading results. Bond trading revenue surged 86% to $3.4 billion, exceeding the $2.61 billion estimate by roughly $800 million, as fixed-income desks were humming, particularly in securitized products and rates. Stock traders posted a 15% increase in revenue to $1.5 billion, compared with the $1.37 billion estimate.

"JP Morgan Chase produced strong results in the fourth quarter of 2019, capping off a solid year for the firm where we achieved many records, including record revenue and net income," Dimon said in the release. "While we face a continued high level of complex geopolitical issues, global growth stabilized, albeit at a lower level, and resolution of some trade issues helped support client and market activity towards the end of the year."

CFO Jennifer Piepszak said last month that trading revenue was "meaningfully" higher in the fourth quarter versus a year earlier. The rebound comes from the industry's' fixed-income trading operations, projected to rise 25% on average, versus a 3% bump in stock trading revenue, KBW analyst Brian Kleinhanzl wrote last month.

In the firm's huge retail banking division, fourth-quarter profit rose 5% to $4.2 billion. While the division's overall revenue climbed 3% to $14 billion, helped by strong credit card and auto loan results, in the core banking business revenue dropped 2% to $6.4 billion as margins shrank on lower interest rates.

The firm's commercial bank posted a 9% drop in profit to $938 million as lower net interest income compressed margins and the bank boosted its provision for credit losses. Asset and wealth management posted a 30% increase in profit to $785 million as rising asset levels boosted results.

Lower interest rates impacted the bank's net yield on interest-earning assets, which fell to 2.38% from 2.55% a year earlier, slightly better than the 2.37% estimate.

J.P. Morgan, the nation's biggest bank by assets, was the first financial institution to report earnings. Later Tuesday, Citigroup reported earnings that exceeded expectations, but Wells Fargo fell short on earnings and revenue.

Bank stocks finished 2019 on a tear, outpacing the broader stock indexes in the fourth quarter as investors rushed into an under-owned sector. J.P. Morgan, in particular, surged last year, climbing about 40%, prompting some analysts to cut their recommendations based on valuation.

But banks face pressure this year as interest rates stay low or are even slashed further. The Federal Reserve cut its benchmark rates for the third time in October, and that pressures banks' net interest income, or the revenue they get from collecting loan payments, minus the interest they pay to depositors.

Here's what Wall Street expected:

Earnings: $2.35 a share, a 19% increase from a year earlier, according to Refinitiv.
Revenue: $27.94 billion, a 4.2% increase from a year earlier.
Net Interest Margin: 2.37%, according to FactSet
Trading Revenue: Fixed income $2.61 billion, Equities $1.37 billion