J.P. Morgan misses profit expectations for the first time in 15 quarters

JPMorgan Chase

J.P. Morgan Chase, the biggest U.S. lender, is closely watched by investors as a bellwether for the financial industry.

J.P. Morgan Chase posted quarterly profit below analysts' expectations for the first time in 15 quarters on weaker-than-expected bond-trading revenue.

The bank generated $1.98 per share in profit for the fourth quarter of 2018, below the $2.20 per share average estimate of analysts surveyed by Refinitiv. The biggest shortfall appeared to come from the New York-based bank's trading division, where fixed-income trading produced $1.86 billion in revenue, compared to the $2.2 billion estimate.

The lender's shares dropped 2.7 percent to $98.23 in pre-market trading Tuesday.

J.P. Morgan, the biggest U.S. bank, is closely watched as a bellwether for the financial industry. So analysts may inquire about how the bank sees loan losses developing in 2019: The firm set aside $1.55 billion for credit losses, an 18 percent increase from a year earlier and $250 million more than analysts' $1.3 billion estimate. The bank said it was preparing for rising losses in retail credit cards and commercial and industrial loans.

"Despite a challenging quarter, we grew markets revenue in the investment bank for the year with record performance in equities and solid performance in fixed income," CEO Jamie Dimon said in the earnings release.

In his remarks, Dimon also addressed the U.S. political dysfunction that is now threatening to slow economic growth: In 2019, "we urge our country's leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment. Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone."

Still, the bank noted that its $7.1 billion in profit, a nearly 70 percent increase from the year earlier, was a fourth-quarter record. Company-wide revenue rose 4 percent to $26.8 billion, just under analysts' $26.84 billion estimate. Across the firm's core lending operations, businesses were strong: The firm posted a 9 percent increase to $14.5 billion in net interest income on loan growth and rising interest rates.

The lender posted net interest margin, a key profitability figure, of 2.54 percent, an improvement of 3 basis points from the previous quarter that matched analysts' expectations.

Non-interest expenses rose 6 percent to $15.7 billion, slightly higher than analysts' $15.6 billion estimate, as the firm invested in technology and high-level hires.

Bank stocks were pummeled last year, particularly in the fourth quarter, on fears that a worsening U.S.-China trade war and global recession could be on the horizon, meaning rising losses across consumer and corporate loans. It was a comedown after the U.S. tax overhaul meant banks would produce billions of dollars more in profit in 2018, setting expectations for a rally in bank shares.

Still, under Dimon, J.P Morgan has exceeded analysts' profit expectations for 15 straight quarters -- up until the fourth quarter of 2018. The bank has leading market share in retail, corporate and investment banking lines, giving it a diverse set of businesses to lean on when a particular area suffers.

Choppy markets in December probably crimped trading and investment banking fees at J.P. Morgan, according to Barclays analyst Jason Goldberg. Trading and investment banking revenue for the biggest U.S. banks probably fell up to 10 percent in the fourth quarter, driven by weakness in fixed income trading and debt and equity issuance.

On Monday, rival bank Citigroup posted profit that beat analysts' estimates on cost cutting and a revenue shortfall triggered by a 21 percent decline in fixed income trading. Bank of America, Goldman Sachs and Morgan Stanley report later this week.

Shares of J.P. Morgan fell 8.7 percent last year, the smallest decline among the six biggest banks and a better showing than the 20 percent decline of the KBW Bank Index. As a result, J.P. Morgan has the highest price-to-book value among its peers.

Here's what Wall Street expected:

Earnings: $2.20 a share, a 25 percent increase from a year earlier, according to Refinitiv.

Revenue: $26.8 billion, a 5.4 percent increase from a year earlier.

Net Interest Margin: 2.54 percent, according to FactSet

Trading Revenue: Equities $1.29 billion, Fixed Income $2.20 billion

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