JPMorgan’s Profits Are Strong, and Rising

Posted January 12, 2018 8:12 p.m. EST
Updated January 12, 2018 8:18 p.m. EST

JPMorgan Chase’s financial results came in slightly stronger than expected Friday, despite a big one-time hit from the new tax law, and they indicate that the bank and its peers could grow even more profitable in the years ahead.

JPMorgan’s results are an important bellwether for the entire financial industry. It’s the biggest bank in the United States by assets. And it’s the first large bank to report its quarterly and annual results, most likely foreshadowing the performances that its rivals will report over the next week.

In the fourth quarter, JPMorgan’s underlying finances were obscured by accounting for the new tax package, which slashed the corporate income tax rate and applied a new, lower rate to earnings that companies had been stockpiling overseas — and that they now need to bring back to the United States.

The changes prompted many banks and other corporations to adjust their balance sheets to create the optimal mix of assets that ultimately will result in the lowest possible tax rate.

In the short term, that resulted in some modest pain: JPMorgan took a $2.4 billion charge, and Wells Fargo, which also reported its results Friday, logged $173 million in costs related to moving money back to the United States to comply with the tax law’s so-called repatriation provision.

In the long run, though, the 21 percent corporate tax rate, down from 35 percent under the previous law, will be a huge boon to companies and their shareholders. JPMorgan, for example, said Friday that its effective tax rate would be about 19 percent — far lower than what it has paid in most past years.

Wells Fargo is already enjoying the fruits of the new law. Despite the repatriation-related loss, it reaped an overall $3.35 billion gain from the new law. That propelled the bank, based in San Francisco, to a $6.2 billion total profit for the fourth quarter.

Without the one-time impacts from the new tax law, JPMorgan’s profits were impressive. The bank raked in more than $24 billion in profits for the full year, consistent with its 2016 results. Analysts said the results were modestly better than they had expected.

JPMorgan’s investment bank was again a laggard, with profits falling by about one-third from a year earlier. That was partly because of the industry’s continued struggle to make money trading bonds, currencies and commodities — a once-powerful business that has shriveled because of new regulations, changing market conditions and greater competition from companies other than banks.

But its consumer-banking business performed better, with profits climbing 11 percent. If the economy remains strong and interest rates rise, that business is likely to accelerate because JPMorgan and other banks will be able to increase the interest rates they charge on loans.