JPMorgan profits rise 17% as investment bank unit shines

JPMorgan Chase got the US banks’ reporting season off to a solid start on Thursday, posting a 17 per cent rise in net income for the first quarter despite signs of a marked slowdown in the retail banking unit.

Earnings per share came to $1.65, comfortably ahead of the consensus forecast of $1.52.

Net revenues for the period were $24.68bn, lighter than estimates of $25.15bn. Net income was $6.45bn, almost one-fifth better than estimates, and 17 per cent higher than a volatility-hit period a year earlier.

The standout performer was the investment banking unit, which saw revenues climb 17 per cent to $9.5bn*. The retail unit – JPMorgan’s biggest by revenues – was much more subdued, seeing a 39 per cent drop in mortgage fees amid a sharp pick-up in interest rates, for example. Overall, revenues from the consumer and community banking unit dropped 1 per cent, to just shy of $11bn.

Return on equity for the period was 11 per cent, flat from the fourth quarter but better than the 9 per cent ROE a year earlier.

Analysts will be poring over figures from the big banks in coming days to see how the election of Donald Trump has boosted prospects for profits. Since winning power in November, Mr Trump has talked a lot about higher interest rates, lower taxes and lighter regulation, vowing to give “a major haircut” to Dodd-Frank, the key piece of post-crisis rulemaking.

A banks index tracked by Keefe, Bruyette & Woods surged about a third between November and early March but has fallen back about a tenth since then, partly on fears that Mr Trump’s early setback on healthcare may mean he also struggles to tackle tax and financial regulation.

One of the big focuses for analysts will be the banks’ net interest margins – or the gap between the yield on their assets and the rates they pay to borrow money. So far, after two interest-rate increases from the Federal Reserve in recent months, the big retail banks like Chase have managed to hold the line on deposits while charging more for loans.

The market will also be keen to hear more about performance trends in consumer portfolios, particularly in auto loans, where there are growing signs of stress in the riskiest customer segments. JPMorgan’s net charge-offs in the auto division came to $81m during the quarter, about one-fifth higher than a year earlier.

JPMorgan is among a handful of big banks which have “clearly been pulling back,” said Hylton Heard, analyst at Fitch Ratings in New York, before the release of the results.

“That is not surprising because this business is cyclical, and we’re in a slowly declining cycle right now.”

During calls with executives, analysts will also be looking out for commentary on the ways in which changes in the regulatory environment could benefit – or hurt – the big banks. Some investors have welcomed the retirement this month of Daniel Tarullo, the Federal Reserve governor in charge of bank supervision, anticipating that his successor may take a more generous view on capital and liquidity standards.

“Even if regulation doesn’t change, you’ve got a lighter regulatory touch,” says John Toohey, head of equities at USAA Investments in San Antonio, Texas, who manages about $6bn on behalf of military members and their families. He is still overweight the banks, even after the roughly 25 per cent run-up since November.

Meanwhile, many executives at the big banks are still backing the Trump team on regulatory reform – even if they don’t see eye-to-eye with the president on everything else.

As JPMorgan chief Jamie Dimon put it earlier this month, during a town-hall address to MBA students: “When you get on the airplane, you’d better be rooting for the success of the pilot.”

*This post has been amended to correct the revenue figure for the investment bank.