JP Morgan Chase reported a 37% drop in fourth-quarter earnings because of a $ 2.4 billion one-time charge related to the new tax law. But the bank’s growth was strong, suggesting the U.S. consumer was in good shape.
The bank said its consumer and community banking segment, which now reaches 61 million households, grew its core loans at an 8% clip. Deposits were up 7%. Consumers’ use of credit cards were brisk, too, with totaling $ 1.2 trillion, up 13%.
The bank’s chairman and CEO, Jamie Dimon, said “2017 was a record year on many measures.” He also stressed that the new economy will be the backbone of the economy, the bottom line of middle-class Americans and the bank’s business going forward.
“The enactment of tax reform is a significant positive outcome for the country,” Dimon said in a statement. “U.S. companies will be more competitive globally, which will ultimately benefit all Americans. ”
The bank reported earnings of $ 1.76 per share for the final quarter of 2017, topping estimates by 7 cents. Excluding special items, earnings per share were $ 1.07. The bank’s revenue, which rose nearly 5% to $ 25.45 billion, also topped forecasts.
more: 401 (k) accounts with 401 (k) accounts
more: List of companies that paid bonuses
more: Retirement crisis: 37% of Gen X say they will not be able to afford to withdraw
J.P. Morgan’s net income totaled $ 4.23 billion, down nearly 40% from $ 6.73 billion in the same period a year ago. However, if you back out of the tax burden, the bank said its net income would have been $ 6.7 trillion.
The one-time tax-related charge was not unexpected. Analysts expected the write-down and said investors should instead focus on the economy and business benefits the bank will derive from the government trimming the corporate tax rate to 21% from 35%.
The bank said it will be 19%, which was less than analysts had forecast.
In a conference call, JP Morgan’s chief financial officer, Marianne Lake, said the bank is still analyzing how the exchange rate will affect its business lines, but stressed that all of its stakeholders and business customers, would share in the windfall.
She said the bank is putting together a “long-term sustainable action plan” in response to the tax changes. And while she said much of the windfall in 2018, she said the benefits will also be passed along to customers and investors.
The bank could, for instance, include loans to low-income loan customers. She said the bank is also likely to share its profits with shareholders through increases in dividend payouts and share buybacks. The bank, she added, would also “lean into” investment opportunities it was already eyeing.
“Ultimately, you can expect some benefits from being passed over to customers and over time,” she said, adding that there will be more and less “across business lines.
“We have not seen this movie before,” said Lake Wall Street analysts in an hour-long conference call. “We will have to see how it plays out.”
The bank will provide a more detailed outline of its plans to deploy freed-up cash at the company’s “Investor Day” meeting in New York on Feb. 27.
“There is still uncertainty,” Dimon said. “The tax code is going to be a noise going down the road” Do not think that we will be investing in the future. . ”
J.P. Morgan expects tax reform to add roughly a third of a percentage point, or 0.3%, to U.S. economic growth this year and next.
The bank’s fourth-quarter results were hurt by weakness in its trading unit. Overall. Its market-specific revenue was down 26%, with fixed-income trading revenue down 34%, while equity market revenue was flat.
However, it has been skewed to the bottom by a $ 143 million loss suffered by the bank to a single customer – Steinhoff International Holdings, a South African retail company that has been hurt by an accounting scandal – that went bad and needed to be written off. If not for that loss, equity trading revenue would have been up 12%, said Lake.
Lake downplayed the loss, saying the widely diversified bank’s corporate and investment banking unit still posted net income of $ 2.32 billion in the fourth quarter of 2017.
“It was the largest loss in that business since the financial crisis,” the chief financial officer said. “While we are obviously disappointed, even with the loss of the unit was still profitable.”
The good news is the tax cuts for U.S. employers and workers will help the economy post better growth going forward.
“We will be better off,” Dimon said.