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JP Morgan beats expectations despite $143m loss from single client
JPMorgan Chase beat Wall Street's expectations for earnings in its fourth trading quarter, saying recent reforms to US tax laws would help boost profits, not only by cutting down the amount of tax the firm paid to the federal government but also by enticing more corporations to borrow further.
However, it wasn't all good news as JPMorgan posted declines in bond trading revenues and flat equity trading income after a huge $143m loss from a single client.
JPMorgan recorded $2.4bn in one-time charges related to the reforms over the three months leading to 31 December, but its tax rate was expected to drop from 32% to 19% for 2018, potentially saving the firm billions of dollars.
As a result of Donald Trump's changes to tax laws having been enacted in December, JP Morgan believed that its corporate clients would begin to borrow more, offer more stock and pursue further mergers and acquisitions, all to the benefit of the bank's revenues.
Chief financial officer Marianne Lake said, "It is a really strong positive for the economy, the country and for our clients generally and so we are very optimistic."
JPMorgan shareholders were also in line to reap the benefits of the massive tax cuts as the firm prepared to return more capital to them.
"All things being equal there is definitely the opportunity to consider dividends and repurchases as we go through 2018," Lake added.
JPMorgan posted adjusted net profits of $6.7bn, or $1.76 per share, coming in ahead of Wall Street's estimate of $1.69 per share, while net revenues rose 4.6% $25.45bn, again beating estimates of $25.15bn.
Including the tax charge, the firm's net profit fell to $4.23bn from the $6.73bn reported twelve months earlier.
Further rain fell on JPMorgan's parade though as trading revenue across the entire industry came under pressure from low levels of volatility.
The bank was also stung with a $143m mark-to-market loss on a margin loan to a single customer in its stock-trading unit.
Lake confirmed that the write-down was associated to Steinhoff, a South African retailer in the middle of a massive accounting scandal.
Steinhoff announced on 5 December that it had uncovered "accounting irregularities", a disclosure that brought about a crash in the dual-listed company's share price, as well as chief executive officer Markus Jooste and chairman Christo Wiese's immediate resignations.
In the wake of the debacle, Steinhoff announced earlier in the month it was seeking "significant near-term liquidity" for several its business units.
Other banks would likely suffer large losses tied to Steinhoff, although they could potentially lower the value of their loans through higher credit provisions as opposed to utilising a markdown like JPMorgan had.
Rising interest income helped JPMorgan soften the blow from declining trading revenues, boosting net interest income 11% to $13.4bn.
As of 1555 GMT, shares had gained 1% to $111.91 each.