JP Morgan is making more profit in 2020 than ever in the fourth quarter

Citigroup can also dissolve previously made provisions for bad loans. But in the capital market business, this American bank benefits less from the booming stock exchanges than its competitor JP Morgan.

JP Morgan's New York headquarters

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 came in at $ 3.79, 50 percent higher than analysts had previously expected. Compared to the same quarter of the previous year, profit increased by 42 percent. Behind that, the business figures for competitor Citigroup, which were 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. This is because risk provisioning for loans at risk of default is often only made at the end of the year. In addition, investment banking is losing momentum, as company 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 made up 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 an increase in earnings of 7 percent in the trading business with bonds and currencies, where it competes with Deutsche Bank. Citi’s earnings, on the other hand, 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, while Citi set aside 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 got into financial difficulties, and oil producers (“frackers”) also got into trouble because the WTI oil price fell just below $ 0 in April. Now, however, 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. But at least almost $ 31 billion in provisions for bad loans remained in JP Morgan’s consolidated balance sheet for 2020.