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Tuesday, January 25, 2022

CFO lowers guidance on ‘headwinds’ including wage inflation after JPMorgan shares fall 6%

Shares of JPMorgan Chase fell on Friday after the bank reported its smallest quarterly earnings beat in nearly two years and the lender’s CFO lowered guidance on the company’s returns.

Here are the numbers:

  • Earnings: $3.33 per share according to Refinitiv, versus estimates of $3.01.
  • Revenue: $30.35 billion, versus estimates of $29.9 billion.

Higher-than-expected expenses posted a 14% drop in fourth-quarter profit to $10.4 billion, while revenue remained almost unchanged at $30.35 billion. JPMorgan said in its release that it took a net profit of $1.8 billion from the issuance of reserves for debt losses that never materialized; Without that 47 percent per share increase, earnings would have been $2.86 per share.

The bank’s shares fell 6.2%.

CFO Jeremy Bynum told reporters on a conference call that management expects the company’s returns to decline in recent years from higher spending and moderate Wall Street revenues. This means it is likely that the bank will miss the firm’s 17% target for return on capital, he said.

“Over the next one to two years, we expect modest earnings gains from that target as headwinds likely outweigh tail winds,” Barnum said, adding that the target is still valid over the “medium term.”

JPMorgan’s spending will increase 8% to about $77 billion in 2022, Barnum said, driven by “inflationary pressures” and $3.5 billion in investments.

When asked whether a tight labor market was forcing JPMorgan to pay more of its personnel, Barnum had this answer: “It is true that labor markets are tight, labor inflation is slight, and for us It’s important to attract and retain the best talent and get paid competitively according to performance.”

Still, the bank will benefit from rising interest rates and credit growth that has drawn investors into the financial industry in recent months. Barnum said net interest income is likely to reach about $50 billion this year, with a $5.5 billion profit from 2021 at projected rates and “high single-digit” loan growth.

After setting aside billions of dollars for loan losses earlier in the Covid pandemic, JPMorgan has benefited as it continues to issue funds as borrowers put up better than expected. Still, CEO Jamie Dimon has said that he does not consider accounting profit to be a core part of business results. Even including Boost, JPMorgan posted the smallest earnings outing in the past seven quarters.

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“Omicron Edition, despite constraints related to inflation and supply chain constraints, the economy is performing extremely well,” Dimon said in the release. “Credit remains healthy with exceptionally low net charge-offs, and we remain optimistic on US economic growth.”

The bank said the company’s revenue rose 1% in the fourth quarter as a market downturn offset stronger investment banking fees, with non-interest expenses rising 11% to $17.9 billion. This was higher than analysts polled by FactSet at $17.63 billion.

JPMorgan executives have previously talked about the need to invest in technology and pay employees after a booming year on Wall Street; Still, analysts can ask management about the trajectory of expenses this year.

“JP Morgan’s results were surprisingly weak and hampered by unusually poor expense management,” Octavio Marenzi, CEO of consultancy Opimas, said in an emailed statement.

Government stimulus programs during the pandemic left consumers and businesses stunned, resulting in stagnant loan growth and prompting Dimon to say last year that credit growth was “challenging”. But analysts point to a rebound in the fourth quarter, driven by demand from corporations and credit card borrowers.

JPMorgan’s chief operating officer, Daniel Pinto, said during a conference call last month that fourth-quarter trading revenue was down 10%, driven by a decline in fixed income activity from record levels.

The bank said trading revenues slowed slightly more than that, falling 11% in the quarter to $5.3 billion. This was largely driven by the downturn at the bond trading desk. Investment banking helped with a 37% jump in fees.

The Wall Street division forced the bank to pay a $200 million fine last month to settle charges of allowing employees to use the messaging app to circumvent record-keeping laws.

Analysts can also ask the bank about the impact of its recent decision to rein in overdraft fees. JPMorgan said last month that it would give customers a grace period to avoid punitive fees, a move that would be “insignificant” to revenue, among other changes.

Shares of JPMorgan have climbed 6.2% this year since Friday, trailing the KBW Bank index’s 11.6% rise.

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World Nation News Deskhttps://www.worldnationnews.com
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