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J.P. Morgan Earnings Beat Expectations

January 14, 2016

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon InterviewJPMorgan Chase & Co. Chief Executive Officer Jamie Dimon Interview
Jamie Dimon, chief executive officer of JPMorgan ChasePhotograph by John Taggart — Bloomberg via Getty Images

J.P. Morgan Chase, the biggest U.S. bank by assets, reported a better-than-expected quarterly profit for the last quarter of the year as it kept a tight lid on expenses and legal costs dropped sharply.

The New York-based bank is the first big U.S. lender to report results since the Federal Reserve raised its key interest rate for the first time since 2006 on Dec. 16.

Higher interest rates are usually good for banks, allowing them to charge higher rates on loans.

J.P. Morgan’s net income rose to $5.4 billion in the three months ended Dec. 31 from $4.9 billion a year earlier. On a per-share basis, the New York-based lender earned $1.32.

Analysts had expected earnings of $1.25 per share.

J.P. Morgan (JPM) shares were up 1.8% in premarket trading. The stock was the only one among the six big U.S. banks to finish 2015 in positive territory, rising 5.5%.

The bank’s total net revenue on managed basis rose about 1% to $23.8 billion.

Revenue from fixed-income trading, usually J.P. Morgan’s most volatile business, fell 3% to $2.6 billion.

Adjusted for the sale of a physical commodities business and other changes, revenue from fixed-income trading would have fallen 1%.

“The businesses generated strong loan growth and credit quality, except for some stress in energy,” Chief Executive Jamie Dimon said in a statement.

U.S. banks, like their global counterparts, had a tough year as falling oil prices and worries about slowing growth in China contributed to weakness in global credit markets, discouraging investors from making big bets.

Legal charges and the costs of meeting stricter capital requirements since the financial crisis have also weighed on the lenders. And even with the Fed rate hike, U.S. interest rates remain near historic lows.

That has meant that cost cutting—the one thing banks can best control—has become a main driver of profits.

Cost-saving efforts at J.P. Morgan go as far as plans to eliminate support for BlackBerrys and requiring that some employees pay for their own devices, BlackBerry or not, the Wall Street Journal reported in October, citing sources. The Journal said that alone could save tens of millions of dollars in 2016.

J.P. Morgan’s total non-interest expenses fell 7.4% to $14.3 billion in the quarter. Legal expenses fell to $644 million from $1.1 billion.

Total compensation expense fell 2.4% to $6.7 billion. The bank said it had 234,598 employees at year-end compared with 241,359 at the end of 2014.

The bank’s balance sheet shrank 2.7% on a sequential basis to $2.4 trillion as of the end of December.

Like other big banks, J.P. Morgan has been shedding assets to appease regulators, who fear its size could pose a risk to the financial system in the event of a failure.

J.P. Morgan’s shares were trading at $58.36 before the opening bell. Up to Wednesday’s close, the stock had fallen 13.2% so far this year—the second worst performer in the Dow Jones Industrial Average.

Citigroup (C) and Wells Fargo (WFC), the third and fourth biggest U.S. banks, report results on Friday.