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JPMorgan Chase Posts Strong Fourth Quarter Results

JPM  JPMorgan Chase & Co. (NYSE: JPM – $58.20) the largest U.S. bank by assets, earned $1.32 a share in the final period of 2015, a bit better than the Street estimate of $1.25 and up 11% from the $1.19 a share posted in the year-earlier quarter. Revenue rose slightly to $23.75 billion and beat expectations, thanks to a $514 million legal settlement and a $178 million debt gain. For all of 2015, JPM earned $6.00 a share, compared with consensus of $5.93 and 2014 results of $5.42.
The company’s two largest business lines, Consumer & Community Banking (C&CB) and the Corporate & Investment Bank (C&IB), reported year-to-year profit advances in the December period of 10% and 80%, respectively, offsetting declines in its smaller divisions, Commercial Banking and Asset Management. The C&CB division benefited from healthy loan and deposit growth, and higher credit card and auto lending revenues, which offset lower mortgage revenues. Expenses moderated, as the employee count declined by 12,000 in 2015, but credit costs in the card and mortgage businesses rose. The strong performance by the C&IB segment was largely powered by declines in legal and compensation expenses. Revenues, however, slipped 4%, hurt by reduced debt underwriting fees, and the December term was a quiet quarter for markets revenues. The loan loss provision swung from a $59 million reserve release in the closing period of 2014 to an $81 million, mostly reflecting additions to reserves for loans to oil & gas companies. Meanwhile, Commercial Banking results were hurt by weaker investment banking revenues, pressure on loan yields, higher expenses, and increased provisions for loans to the energy and metals sector. And asset Management results declined 6% due to decreased performance fees. 
Prospects for the year ahead seem mostly favorable. Core loans are growing at a mid-teens pace and net interest income should benefit as interest rates rise. But mortgage income probably will remain soft, and year-ahead prospects for investment banking and markets activity is unclear. Too, the outlook for credit costs is a little hazy, given the turmoil in the oil patch. The company estimates that if oil prices remain near $30 a barrel, it may need to add $750 million to its loan loss reserves, while reserves for loans to metals companies probably will be less onerous.
In all, I remain cautious. The consensus estimate at $6.19 a share remains reasonable for now and longer-term prospects are favorable. JPMorgan continues to build up its already strong positions in the consumer banking and investment banking arenas; it is focusing on improving efficiency; and the company has made a lot of progress strengthening its equity capital ratios, a measure of financial resiliency. The 3.1% dividend yield also sweetens the pot.


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