After record profits, JPMorgan watched on its costs

Posted Jan 14, 2022, 6:36 PM

American banks are putting their annual accounts in order. After having massively provisioned in 2020 to protect themselves from payment defaults by their customers, they took over a good part of their reserves last year. What consolidate their results last year. JPMorgan, which opened the ball for Wall Street banks on Friday, posted net income of $48.3 billion for the year, up 66% from 2020.

Citi and Wells Fargo, which also published their results on Friday, are on the same trend. Led since March by Jane Fraser, Citi recorded net income of $22 billion for the year, double compared to 2020. Its revenues, at $71.9 billion in turnover, on the other hand, fell. 5% over one year. The CEO, who wants to make Citi more “efficient”, is especially expected on the recovery of the rate of return on equity (RoE). It returned to 11.5% last year, against 10.3% in 2019, but remains far from the champion JPMorgan (19%).

Wells Fargo, which brought Charlie Sharf to its head in 2019 to put the bank back on its feet after a scandal, published net income of $21.5 billion, compared to $3.37 billion in 2020. Its revenues grew 5.7% over one year, to 78.5 billion dollars (+5.7%).

Mergers & Acquisitions

Banks have benefited from massive public aid, which has limited business bankruptcies. They are also benefiting from rising deposits with their individual customers, and from unbridled consumption, which has boosted credit card activity. The real estate market was also buoyant, but in other areas lending activity was sometimes held back by shortages, such as in the car market.

Number one in the market by the size of its assets, JP Morgan benefited from mergers and acquisitions at an “unprecedented” level: they caused its commissions to jump by 37% in the fourth quarter. “The economy continues to do well despite headwinds from the Omicron variant, inflation and supply chain bottlenecks,” JP Morgan CEO Jamie Dimon said in a statement. .

Rising costs

Investors nevertheless pushed back the price of JPMorgan shares when the results were announced, visibly disappointed by the performance of trading activities at the end of the year. If the bank achieved an even better net result than in 2019, already record (36 billion dollars), its costs increased faster than its income last year (by 4.7% against 1%). Citi also saw its costs jump 9% last year.

With an announced increase in technology investments and a tight job market that is pushing wages up, the evolution of spending by analysts will be scrutinized closely. JPMorgan expects spending to rise more than 8% this year, to $77 billion. According to UBS analysts, this forecast clearly exceeds the consensus. Despite inflation, Jamie Dimon says he is “optimistic” for 2022, with in particular a credit market deemed “healthy” and “consumers (who) benefit from job and wage growth”.

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