Friday 15th January 2021
Decline in profits in the Corona year
Investment banking reconciles JP Morgen
The largest US bank makes billions with its investment banking. The division also compensates for weaker business in other areas. On top of that, the financial institution benefits from having to set aside less money for loan defaults. Citi and Wells Fargo also benefit from this.
In the middle of the worst economic crisis in decades, profits are gushing at the US bank JP Morgan. Thanks to a flourishing trade in stocks, bonds and commodities, the largest US bank earned more than ever in the fourth quarter of 2020. Growth in investment banking offset losses in retail banking. Bank boss Jamie Dimon was confident that the bank will survive further storms in the corona crisis.
The bottom line is that JP Morgan earned a good 40 percent more from October to December with $ 12.1 billion. Over the year as a whole, however, profits fell. After a record $ 36 billion in 2019, JP Morgan made $ 29 billion last year.
In the first few months, as with other banks, drastically increased risk costs to cover impending loan defaults had an impact. However, since the economic outlook, especially for companies, has improved in the meantime, JP Morgan released almost $ 3 billion in loan loss provisions in the fourth quarter. At the end of the year, this resulted in risk costs of EUR 30.8 billion. "With this we see ourselves in a position to face further economic uncertainty in the short term," said Dimon.
The earnings rose in the fourth quarter group-wide by three percent to 30.2 billion dollars. Investment banking in particular stood out, with revenues skyrocketing by almost a fifth. Trading in stocks, bonds and commodities was buzzing. In contrast, revenues in business with private customers – still the largest division – fell by eight percent.
Citi can't keep up with JP Morgan
Citi and Wells Fargo also released part of their risk provisioning. The six largest US banks set aside a total of $ 65 billion for impending loan defaults in the first nine months of the year, around half of them in the second quarter alone. At that time, however, several institutes had already signaled that this was the climax.
Citigroup's annual profit slumped 41 percent to $ 11.4 billion. In the final quarter, the decline was less significant, with a minus of seven percent to $ 4.6 billion. Citigroup failed to achieve an increase in income like JP Morgan, although it also benefited from increased trading activity in stocks and bonds. The group-wide revenue decreased by ten percent to 16.5 billion dollars.
Wells Fargo with a slump in profits
The West Coast Bank Wells Fargo, meanwhile, managed for the first time in six quarters to exceed analysts' earnings expectations. She earned $ 2.99 billion after $ 2.87 billion the previous year. In the meantime, revenue has dropped by almost a tenth to $ 17.9 billion, more than feared. Here, too, the low interest rates represented a major problem: The bank's net interest income fell by 17 percent to 9.3 billion dollars.
The weak previous quarters at Wells Fargo meant that the bank earned only $ 3.3 billion for the full year, a massive slump compared to the 19.5 billion of the previous year. One reason is that the bank was hit by the Corona crisis in a weaker state than its competitors as it is still recovering from an illegal business practice scandal.
In the coming week Goldman Sachs, Bank of America and Morgan Stanley will present their results for the past quarter.