[NEW YORK] Bolstered by lower costs and a strong performance in consumer lending, JPMorgan Chase reported higher earnings Thursday and offered a generally upbeat appraisal of the US economy.
The biggest US bank by assets reported fourth-quarter earnings of US$5.4 billion, up 10.2 per cent from the year-ago period, lifting annual profits to US$24.4 billion, a 12.5 per cent increase from 2014.
Chief executive Jamie Dimon said the US economy looks "pretty good" in spite of the hit to the oil industry from falling crude-oil prices and worries about the effects of a slowing China.
"The US economy has been chugging along at 2.0-2.5 per cent growth. In the last two years we have created five million jobs," Mr Dimon said in a conference call with analysts.
"When you look at the actual household formation, car sales, wages, people working, it still looks okay." The solid earnings lifted shares in Dow member JPMorgan by 1.9 per cent and also lent some support to the broader stock market, which has been in retreat for most of early 2016. In late-afternoon trade, the S&P 500 was up 1.7 per cent.
Sam Stovall, chief investment strategist at S&P Capital IQ, said investors were reassured that the bank's outlook on potential losses from the oil market rout was not as bad as feared.
"That was the big worry a lot of investors had," Stovall said.
The earnings report showed gains in some key consumer categories. Higher revenue from credit card and auto loans boosted the performance in JPMorgan's consumer banking business, although mortgage banking returns were weaker than in the year-ago period.
Also on the positive side, JPMorgan said total loans were US$837.3 billion, up about 10.6 per cent from the year-ago period.
Results were also strengthened by lower spending on staff compensation and building rents, as well as much lower legal expenses. In all, non-interest expenses fell 7.6 per cent to US$14.3 billion.
JPMorgan also saw an increase in its ratio of net interest income to interest payments of seven basis points to 2.23 per cent following a move by the US Federal Reserve in December to raise interest rates for the first time in nine years. Banks profits generally benefit from higher interest rates.
But the rout in commodity prices dented results somewhat, as JPMorgan booked US$86 million in reserves following downgrades of US$124 million in the oil and gas portfolio and US$35 million in metals and mining.
JPMorgan chief financial officer Marianne Lake said the bank expects "incremental" additional reserves in the months ahead in case low oil prices result in loan defaults.
That level could get as high as US$750 million if oil prices reach $30 a barrel and stay there for 18 months, she said.
The oil downturn has raised worries of a broader hit to the US economy and Mr Dimon said there likely will be some slowdown.
Credit quality throughout the broader economy "is as good it's ever been," Mr Dimon said. "Obviously it's going to get worse." "If you have a recession, you will see a normal cyclical increase in all those losses," Mr Dimon said. "We're not forecasting a recession." Dimon said there were also benefits to the economy from lower oil prices.
"When you have commodity prices go down like that there are big winners and losers. The oil companies are the losers. Consumers get the benefit," he said.
"Hopefully this will all settle down," he said. "It's not the beginning of something really bad."