JP Morgan Chase has drawn a spectacular line under the balance sheet for the Corona year 2020. As the American bank announced on Friday, it earned 12.1 billion dollars (10.0 billion euros) in the fourth quarter alone. This swelled net profit for the full year to $ 29.1 billion. This corresponds to a year-on-year profit decline of 20 percent. But the fourth quarter of 2020 is now considered to be the best in the history of the institute, which emerged in 2000 from the merger of the two banks Chase Manhattan and JP Morgan & Co.
Jamie Dimon, who has led JP Morgan as CEO since 2005, spoke of “strong results” at the end of a challenging year. In fact, JP Morgan’s quarterly earnings per share were $ 3.79, 50 percent higher than analysts had previously expected. Compared to the same quarter of the previous year, profits increased by 42 percent. Behind that, the business figures for competitor Citigroup, also published on Friday, faded. That bank made $ 4.6 billion in the fourth quarter, 7 percent less than the year-ago quarter.
This fourth quarter is unusual
The fourth quarter is usually one of the weakest for banks. Because risk provisions are often only made for loans at risk of default at the end of the year. In addition, investment banking is losing momentum, as corporate acquisitions (M&A) and IPOs rarely take place and corporate customers therefore rarely need banks as advisors. In the Corona year it was different: JP Morgan and Citigroup benefit enormously from the fact that they were able to release provisions for bad loans previously made. And the M&A business continued around Christmas, from which both banks benefited differently.
With nearly 20 percent higher investment banking revenues, JP Morgan grew revenues 3 percent overall in the fourth quarter. The bank compensated for a decline of 8 percent in private customer business, which suffered from the lower interest rates. Citigroup, on the other hand, also disappointed in investment banking with a 7 percent increase in earnings in the trading business with bonds and currencies, where it competes with Deutsche Bank. By contrast, Citi’s earnings rose a whopping 57 percent in the stock trading business, from which Deutsche Bank has withdrawn.
Ups and downs in the credit business
The banks’ lending business is a particular focus of the Corona crisis. As a reminder: JP Morgan had set aside $ 10.5 billion for bad loans in the second quarter of 2020 alone, and Citi almost $ 8 billion. This is how the banks reacted to the corona pandemic, because many Americans who have become unemployed find it more difficult to service their credit card debt. Companies also ran into financial difficulties, and oil producers (“frackers”) also got into trouble because the WTI oil price fell just below $ 0 in April. But now JP Morgan was able to dissolve $ 2.9 billion in the fourth quarter, and Citi at least $ 1.3 billion. These amounts benefited quarterly earnings. The economic prospects, especially for companies, have now improved, it was said to justify. Still, almost $ 31 billion in provisions for bad loans remained in JP Morgan’s consolidated balance sheet for 2020.