Banks profit big amid recovery

JPMorgan, Wells Fargo, Goldman Sachs beat forecasts

ATMs line the lobby of a Wells Fargo office in New York. Wells Fargo & Co. said Wednesday that its first-quarter net profit jumped to $4.74 billion from a year earlier.
(AP)
ATMs line the lobby of a Wells Fargo office in New York. Wells Fargo & Co. said Wednesday that its first-quarter net profit jumped to $4.74 billion from a year earlier. (AP)

NEW YORK -- JPMorgan Chase, Wells Fargo and Goldman Sachs kicked off a highly anticipated earnings reporting season Wednesday with profits that soared past Wall Street's expectations.

Chase saw its first-quarter profit jump nearly five fold from a year earlier, as the improving economy allowed the bank to free up roughly $5 billion that it had stored away to guard against loan defaults in the early weeks of the pandemic.

The nation's largest bank by assets said that it earned $14.3 billion, or $4.50 per share, in the year's first three months. That's compared with a profit of $2.87 billion, or 78 cents per share, in the same period a year earlier.

Excluding the loan loss releases, the bank earned $3.31 per share. The results were significantly better than the forecast from analysts, who were looking for JPMorgan to report a profit of $3.10 per share, according to FactSet.

A chunk of JPMorgan's profit gain came from its ability to release $5.2 billion from its loan-loss reserves in the latest quarter. Banks such as JPMorgan set aside billions to cover potentially bad loans during the early months of the coronavirus pandemic.

"It is now increasingly clear that the bank over-reserved (for losses in the early part of the pandemic), and that money is now flowing back into its earnings, concealing some of the weakness in consumer banking. But overall this was a great quarter for JPMorgan," said Octavio Marenzi, chief executive officer of consulting firm Opimas LLC, in an email.

With the economic picture improving, and trillions of dollars of government stimulus being injected into the U.S. economy, those loans are no longer considered at risk of failing and banks have become confident they can return these loans to the "good" side of their balance sheets.

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

"With all of the stimulus spending, potential infrastructure spending, continued quantitative easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust, multi-year growth," said Jamie Dimon, the bank's CEO and chairman, in a statement.

JPMorgan released roughly $2.9 billion from its reserves in the fourth quarter. The company still has $26 billion stored away in its loan-loss reserves, which Dimon said is an "appropriate and prudent" amount for the bank currently.

JPMorgan also had a surge in revenue and profits in its investment banking division, which helped its overall bottom line. The investment banking division had revenue of $14.6 billion in the quarter, up from $10 billion a year earlier. The bank saw significant gains in revenue from its trading desks, reflecting the healthy volatility last quarter in both the bond market and stock market.

Total revenue across the entire bank was $33.12 billion, up from $29.01 billion a year earlier.

Wells Fargo had its best quarter in a year and a half, posting a profit of $4.74 billion and freeing up more than a billion dollars that had been set aside for potential loan defaults.

The San Francisco-based bank on Wednesday said it earned $1.05 per share on revenue of $18.06 billion in the quarter, both surpassing Wall Street's forecasts. Analysts surveyed by Zacks were expecting earnings per share of 69 cents and revenue of $17.62 billion.

The biggest U.S. mortgage lender had net interest income of $8.8 billion, a more than 22% decline from the $11.3 billion in the same period last year. Although interest rates have ticked up recently, they have remained low as the Federal Reserve has signaled plans to keep its benchmark borrowing rate near zero until 2023.

The consumer bank released $1.6 billion from its loan loss reserves, acknowledging an improving economy. The bank said the return of that cash, plus the sale of some student loans, helped increase its earnings by 30 cents per share.

In the same quarter last year, Wells Fargo reported a 90% drop in profits and set aside nearly $4 billion in loan loss provisions.

Wells Fargo CEO Charlie Scharf said in a statement that low interest rates remain a "headwind" for the bank, but that it remains focused on "appropriate risk and control environment."

"This is a multiyear effort and there is still much to do, but I am confident we are making progress, though it is not always a straight line," Scharf said.

The bank has been operating under strict federal guidelines, limiting its ability to grow.

In 2018, the Fed capped the size of Wells Fargo's assets after a series of scandals beginning in 2016 with the uncovering of millions of fake checking accounts its employees opened to meet sales quotas. The Fed lifted that cap last April as part of the federal government's Payroll Protection Program because many of Wells' small business customers were getting shut out from applying, but most of the restrictions remain.

Investment bank Goldman Sachs cashed in on another strong period for its traders and investment bankers, with revenue and earnings rising to a record.

Trading revenue surged 47% to $7.58 billion, fueled by equities. Goldman's dealmakers also contributed to the positive quarter, with investment-banking fees surging 73%. Revenue from equity underwriting quadrupled to $1.57 billion as the red-hot market for special purpose acquisition companies and technology-company initial public offerings gave bankers a bonanza in the first three months of the year.

Investors will look for signs of how long IPOs and trading will keep the machine roaring at the investment bank, which has had an extraordinary run through the covid-19 crisis. In the year since the pandemic first disrupted the global economy, Goldman Sachs has benefited from the surge in market volatility and companies tapping wide-open capital markets.

Goldman's revenue came in at $17.7 billion for the quarter, and earnings rose to $6.84 billion.

Fees from helping put together deals for companies rose 43% to $1.12 billion. That, along with equity underwriting, helped propel total investment-banking revenue to $3.77 billion, setting a quarterly record.

Information for this article was contributed by Ken Sweet and Matt Ott of The Associated Press and by Sridhar Natarajan of Bloomberg News.

Upcoming Events