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Fitch: JPM Reports Another Year of Record Earnings in 2016
January 13, 2017 / 9:23 PM / a year ago

Fitch: JPM Reports Another Year of Record Earnings in 2016

(The following statement was released by the rating agency) NEW YORK, January 13 (Fitch) JPMorgan Chase & Co. (JPM) reported record earnings in the fourth quarter of 2016 (4Q16) driven by: core loan growth of 12%, record card sales volume growth of 14%, record fourth quarter markets activity, reserve releases in consumer and wholesale portfolios, and continued expense controls, according to Fitch Ratings. Returns on equity and tangible equity were 11% and 14% in the quarter, respectively, which is above average for the peer group. Full-year results for 2016 were also at record levels, with reported earnings up about 1.2% year-over-year. Adjusted expenses were in-line with management guidance, at about $56.1 billion, which was relatively flat with the prior year as strategic cost savings programs largely offset investments in controls. Net charge-offs for the year met Fitch's expectations, at $4.7 billion. Charge-offs were up about 14.8% from 2015, driven by loan growth, portfolio seasoning, and about $270 million of losses from oil & gas and metals & mining portfolios. JPM recorded a $400 million net reserve release in 4Q16, consisting of a $250 million release in consumer portfolios, largely mortgage, and a $150 million release related to oil & gas and metals and mining portfolios in the wholesale book. Fourth quarter net revenues in the corporate and investment bank (CIB) were up 19.7% year-over-year, driven by a record fourth quarter in the markets business. Overall markets revenue was up 24.2% annually, with nearly 31% growth in fixed-income products, driven by spread products and more active hedging in commodities products. Equities were up 8%, led by stronger derivatives activity. Investment banking fees were up about 5% as declines in advisory and equity underwriting was more than offset by stronger debt underwriting, given a relatively weak 4Q15. JPM maintained its leading market share in a variety of product categories for the year and was the only top five bank to gain share in investment banking in 2016, according to the company. Segment earnings nearly doubled given reserve releases in energy-portfolios, reduced compensation expenses, tight operating costs controls, and a $475 million tax benefit related to the use of deferred tax assets. The compensation expense ratio was 20% in the quarter and 27% for the full-year, which was an improvement over 2015. Revenue and earnings in the Consumer and Community Banking (CCB) segment were down modestly year over year, as strong loan and deposit growth, record card sales volume, declines in credit costs, and continued expense discipline were offset by higher account origination costs in card and the absence of a gain on the IPO of Square, recognized in 4Q15. Segment credit quality remained strong and drove $425 million of reserve releases in the mortgage book and $25 million of releases in the student loan portfolio, which were only partially offset by a build in card and business banking. The commercial banking segment reported record revenue, supported by continued loan growth and higher investment banking revenue. Average loan balances were up 13.9% year over year, led by growth in commercial & industrial loans and commercial real estate (CRE). Growth in these portfolios is outpacing the peer group, but segment credit quality remained relatively benign, with net charge-offs of 11 basis points in the quarter. Management indicated that about 75% of the CRE portfolio was multifamily lending, in strong properties and underserved markets, while the remaining 25% was to real estate developers the firm knows well. The CRE book has had no net losses. Segment investment banking revenue was a record for the year, at $2.3 billion, which was up 4.9% from 2015. Asset management remained a solid contributor to overall results, with revenues up and expenses down modestly. Flows into long-term products were negative in the quarter, but positive for the year. Assets under management were up 2.8% annually, with higher markets and overall net inflows. From a liquidity perspective, JPM's high-quality liquid assets (HQLA) remained strong, at $524 billion. Loans-to-deposits were down modestly from a year ago, to 65.1%, despite strong loan growth, and remains below the peer average. JPM's Basel III Tier 1 Common equity (CET1) ratio was up 30 basis points in the quarter, to 12.2%, given strong earnings and a decline in risk-weighted assets. The bank's capital ratio was 12.3% under the fully phased-in standardized approach and JPM believes the standardized ratio will eventually be the binding constraint. The supplementary leverage ratio (SLR) was 6.5% and 6.6% at the firm and bank level, respectively. JPM paid a dividend of $0.48 per share in the quarter, equating to a payout of about 28%. The bank repurchased $2.25 billion of equity in the quarter, leaving approximately $6.1 billion of repurchase authority for the next two quarters, based on the results of last year's CCAR process. Including share repurchases, the total payout in the quarter was about 65%. Contact: Meghan Neenan, CFA Senior Director +1-212-908-9121 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Joo-Yung Lee Managing Director +1-212-908-0560 . Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available at 'www.fitchratings.com'. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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