JPMorgan Chase's financial results came in slightly stronger than expected Friday despite a big one-time hit from the new tax law, and they indicate that the bank and its peers could grow even more profitable in the years ahead.
JPMorgan's results are an important bellwether for the entire financial industry. It's the biggest bank in the United States by assets. And it's the first large bank to report its quarterly and annual results, most likely foreshadowing the performances that its rivals will report over the next week.
JPMorgan said Friday that it earned $4.23 billion in the fourth quarter, or $1.07 a share, down from $6.73 billion, or $1.71 a share, in the same period a year earlier. Excluding a $2.4 billion charge, the bank would have earned $6.7 billion, or $1.76 a share, which beat analysts' forecasts of $1.69 a share.
For the year, JPMorgan and Wells Fargo & Co. will reap an even bigger windfall from U.S. tax cuts than most analysts had predicted -- a combined haul of about $7 billion this year for two of the biggest corporate taxpayers.
In the fourth quarter, JPMorgan's underlying finances were obscured by accounting for the new tax package, which slashed the corporate income tax rate and applied a new, lower rate to earnings that companies had been stockpiling overseas -- and that they now need to bring back to the United States.
The changes prompted many banks and other corporations to rejigger their balance sheets to create the optimal mix of assets that ultimately will result in the lowest possible tax rate.
In the short term, that resulted in some modest pain: JPMorgan took the $2.4 billion charge, and Wells Fargo, which also reported its results Friday, logged $173 million in costs related to moving money back to the United States to comply with the tax law's so-called repatriation provision.
In the long run, though, the 21 percent corporate tax rate, down from 35 percent under the previous law, will be a huge boon to companies and their shareholders. JPMorgan, for example, said Friday that its effective tax rate would be about 19 percent -- far lower than what it has paid in most past years.
Wells Fargo is already enjoying the fruits of the new law. Despite the repatriation-related loss, it reaped an overall $3.35 billion gain from the new law. That propelled the San Francisco-based bank to a $6.2 billion total profit for the fourth quarter.
Without the one-time impacts from the new tax regime, JPMorgan's profits were impressive. The bank took in more than $24 billion in profits for the full year, consistent with its 2016 results. Analysts said the results were modestly better than they had expected.
JPMorgan's investment bank was again a laggard, with profits falling by about a third from a year earlier. That was partly because of the industry's continued struggle to make money trading bonds, currencies and commodities -- a once-powerful business that has shriveled because of new regulations, changing market conditions and greater competition from companies other than banks.
But its consumer-banking business performed better, with profits climbing 11 percent. If the economy remains strong and interest rates rise, that business is likely to accelerate because JPMorgan and other banks will be able to increase the interest rates they charge on loans.
Among employees, the lower-paid are most likely to see a benefit, the firms said. Some 70,000 Wells Fargo staff members will be in line for raises, Chief Financial Officer John Shrewsberry said in a telephone interview. Bank of America Corp., which reports results next week, said last month that about 145,000 workers would get a $1,000 bonus.
Banks could help customers, for example, by providing more low- and moderate-income borrowers with mortgages and easing credit for small businesses, Lake said. Still, the competitive landscape for products and services will vary, and that will also determine how quickly the industry's benefits are passed to consumers.
And banks are likely to ramp up charitable contributions. JPMorgan said it added $200 million to the bank's foundation in the fourth quarter. Wells Fargo expects to donate $400 million in 2018, up from $283 million in 2017, Shrewsberry said.
JPMorgan's largess isn't completely devoid of self-interest. Supporting communities with cheaper credit will allow businesses to grow and spend more money, leading to a virtuous cycle of greater economic growth, the managers said.
"It will enhance our growth in the future, too, by the way," Chief Executive Officer Jamie Dimon said. "It's not a giveaway."
Information for this article was contributed by The New York Times, Bloomberg News and The Associated Press.
Business on 01/13/2018