JP Morgan's profit jumps as investment banking business recovers

The New York-based bank earned a profit of $12.14bn in Q4

In the fourth quarter, JPMorgan's corporate and investment bank posted a profit of $5.35bn compared with $2.94bn in the same period a year earlier. AFP

JP Morgan Chase, the largest bank by assets in the US, said its fourth quarter profits jumped by 42 per cent from a year earlier, as the firm's investment banking division had a stellar quarter and its balance sheet improved despite the Covid-19 pandemic.

The New York-based bank said it earned a profit of $12.14 billion, or $3.79 per share, up from a profit of $8.52bn, or $2.57 per share, in the same period a year ago. Excluding one-time items, the bank earned $3.07 a share, which is well above the $2.62 per share forecast analysts had for the bank.

The one-time item was JP Morgan “releasing” some of the funds it had set aside last year to cover potentialaloan losses caused by the coronavirus pandemic and subsequent recession. Banks had set aside tens of billions of dollars to cover potentially bad loans, and JPMorgan had been particularly aggressive in setting aside funds early in the pandemic.

Releasing those funds goes straight to a bank's bottom line when it reports its results, but it's not the money that the bank generated from loans, customers or borrowers. It is just funds that were effectively put into escrow and are no longer in escrow.

The $1.9bn release is only a fraction of what JP Morgan set aside last year, and with the pandemic raging across the globe and particularly in the US, it is uncertain how much more the bank will release in the upcoming quarter.

“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30bn continue to reflect significant in near-term economic uncertainty,” said JP Morgan chief executive Jamie Dimon in a statement.

The driver of JP Morgan's profits this quarter was the investment banking business. The corporate and investment bank posted a profit of $5.35bn compared with $2.94bn in the same period a year earlier.

JP Morgan said it recorded higher investment banking fees – money banks collect to advise companies on going public or buying other companies - as well as higher fees from its trading desks.