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JPMorgan Blasts Q4 Earnings Forecast On $2.9 Billion Reserve Release, Investment Banking Revenue Gains

JPMorgan booked a $1.9 billion benefit to its fourth quarter earnings Friday, adding to gains in investment banking that drove a strong beat of Wall Street forecasts.

JPMorgan Chase  (JPM) - Get JP Morgan Chase & Co. Report posted much stronger-than-expected fourth quarter earnings Friday as investment banking profits surged and the group booked a benefit of $1.9 billion from its earlier credit provisions.

JPMorgan said earnings for the three months ending in December were pegged at $3.79 per share, up 47% from the same period last year and well ahead of the Street consensus forecast of $2.62 per share. Group revenues, JPMorgan said, rose 3.4% to $30.2 billion, again ahead of analysts' estimates of a $28.7 billion tally.

The $1.9 billion benefit was linked to a $2.9 billion release of previous credit loan provisions, JPMorgan said, adding 72 cents per share to its bottom line, "reflecting an improvement in the macro-economic scenarios and the continued ability of clients to access liquidity and capital markets."  

The bank's return on tangible equity, a key benchmark for sector comparisons, was an impressive 24% for the quarter, pegging its full-year reading at 14%. 

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“JPMorgan Chase reported strong results in the fourth quarter of 2020, concluding a challenging year where we generated record revenue, benefiting from our diversified business model and dedicated employees," said CEO Jamie Dimon. "While we reported record profits of $12.1 billion, we do not consider the reserve takedown of $2.9 billion to represent core or recurring profits – essentially reserve calculations, while done extremely diligently and carefully, now involve multiple, multi-year hypothetical probability-adjusted scenarios, which may or may not occur and which can be expected to introduce quarterly volatility in our reserves."

"While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists,” he added.

JPMorgan shares were marked 1% lower in early trading immediately following the earnings release to change hands at $139.60 each.

Investment banking revenue, JPMorgan said, surged 37% to $2.5 billion, while revenues in the group's fixed income division rose to $4 billion.