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JPMorgan misses Q4 profit estimates as bond trading slumps

Market volatility blamed for bond revenue losses; net income at US$1.98 per share, down from analysts' estimate of US$2.20

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Like JPMorgan, Citigroup on Monday also posted a sharp drop in fixed income revenue. Goldman Sachs and Morgan Stanley, which will report earnings later this week, are likely to say they experienced the same effects in their large fixed-income trading businesses.

New York

JPMORGAN Chase & Co missed profit estimates for the fourth quarter as a slump in bond trading revenue overpowered strong consumer loan growth and record revenues.

It was the first time JPMorgan Chase, the largest US bank by assets, has underperformed earnings-per-share expectations in 16 quarters, according to Barclays equity analyst Jason Goldberg.

JPMorgan was the second large US bank to point the finger at choppy markets in December for its bond revenue losses. Citigroup Inc on Monday posted a sharp drop in fixed income revenue, blaming widening credit spreads, or the premium investors demand for holding corporate bonds over safer US Treasury securities.

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Goldman Sachs and Morgan Stanley, which report earnings later this week, are likely to say they experienced the same effects in their large fixed-income trading businesses.

Well Fargo & Co, which relies less on trading, said on Tuesday that fourth-quarter revenue missed expectations as revenue across all its banking units declined, especially at community banking.

Despite an 18 per cent drop in JPMorgan's quarterly fixed-income revenue, chief financial officer Marianne Lake said one down quarter does not make a trend. "The outlook for growth in the economy is still strong," she said on an analyst call. "The consumer is still strong and healthy. We are expecting to see maybe slower but still global growth going forward."

Its shares edged up 0.7 per cent to close at US$101.68.

The bank increased its provision for credit losses by US$240 million from a year earlier, with roughly two-thirds for commercial and industrial loans. Ms Lake said the rise in provisions were "driven by literally a handful of names across a handful of sectors."

Asked about any broader concerns over clients' credit-worthiness, Ms Lake said, "There's nothing to see right now in our portfolios and we're looking. We're more paranoid than you are."

JPMorgan's equities trading revenue rose 2 per cent from a year earlier, helped by strength in prime brokerage, which serves hedge fund clients.

Investment banking revenue rose 3 per cent on higher advisory fees, even as underwriting fees declined.

Revenue in asset and wealth management fell 5 per cent as market declines translated into lower asset levels and management and performance fees.

Trading desks at banks have been shaken by global growth concerns and the ongoing trade war between the United States and China. Bank stocks underperformed the S&P 500 index in 2018 by 13 per cent.

On a conference call with reporters, JPMorgan chief executive officer Jamie Dimon said the partial US government shutdown will hurt the US economy if it persists. "We don't know exactly what it is going to do, but it is not a positive," he said.

JPMorgan said expenses rose 6 per cent, outpacing revenue growth as it invested in technology, marketing and real estate.

Net income increased 67 per cent to US$7.07 billion, or US$1.98 per share, from a year ago, when it took a one-time charge due to the US tax overhaul. But it missed analysts' average estimate of US$2.20 per share, according to IBES data from Refinitiv.

Net interest income was up 9 per cent to US$14.5 billion on higher interest rates in 2018.

The bank's average core loan book grew 6 per cent from the year-earlier quarter.

Revenue rose 4.1 per cent to US$26.80 billion, shy of the average analyst expectation of US$26.83 billion. REUTERS