Higher labor costs are a factor in JPMorgan Chase's fourth-quarter results, but the US bank reported record annual profits of $48.3 billion on Friday.
The financial giant pointed to a solid US economy that allowed it to release reserves set aside previously in the Covid-19 pandemic in case of defaults, which boosted profits. There is an increase in overall lending, another sign of an increase in economic activity.
Two other large banks, Wells Fargo and Citigroup saw a similar benefit and pointed out the healthy state of consumers and businesses that translates to low delinquencies and charge-offs.
The shares of both JPMorgan and Citigroup fell sharply as executives acknowledged an outlook that was clouded by rising inflation and lingering Covid 19 uncertainty.
The economy continues to do well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks, said Jamie Dimon, JPMorgan Chief Executive.
We remain optimistic about the US economic growth, as business sentiment is upbeat and consumers are benefiting from job and wage growth. The bank is watching Omicron and how it may affect sentiment as it is still early days on the latest Covid 19 variant, according to Mark Mason, Chief Financial Officer. On inflation, Citi's business clients are mostly able to pass on higher costs and not really feel a pinch, he said. It's kind of early days to call and we're watching it closely. Earnings at JPMorgan were at $10.4 billion, down 14 percent from the year-ago period. Revenues were flat at $29.3 billion.
The quarter's results included $1.8 billion in net reserve releases from funds that were set aside earlier in the pandemic in case of bad loans.
The report included higher investment banking fees tied to what Dimon called unprecedented merger and acquisition activity, offset by a drop in trading revenues in some businesses.
The bank saw an increase in fourth-quarter expenses by 11 percent, with much of it due to higher labor costs. Jeremy Barnum, the Chief Financial Officer, pointed out that there was an elevated level of attrition in the workforce that resulted in wage hikes.
JPMorgan Chase predicted spending would remain elevated, projecting expenses of $77 billion in 2022, up from $70.9 billion last year.
Dimon said the current uptick in inflation includes things that are not transitory, such as housing, oil prices and wages.
They're elevated for a while, according to Dimon on a conference call with journalists. The Fed needs to thread the needle. The growth in inflation was a little bit slow down, but it didn't stop the growth. Eric Compton, senior equity analyst Morningstar, said he was surprised by the extent of spending increases, as well as JPMorgan's forecast on the benefit of higher Federal Reserve interest rates on net interest income.
He said that estimates for JPMorgan shares will be tamped down as a result of the shifts.
In the fourth quarter, the profits at Citigroup fell 26 percent, due to higher costs related to consumer business divestitures in Asia.
Citi Chief Executive Jane Fraser described the fourth quarter as a good end to 2021, according to Jane Fraser. In the fourth quarter, profits increased by 86 percent to $5.8 billion at Wells Fargo, a 13 percent increase in revenues to $20.9 billion.
Wells Fargo saw a jump in consumer and commercial lending in the fourth quarter compared to earlier in the year 2021, and said that a strong economic environment helped reduce charge-offs to historical lows. By the end of the day, JPMorgan's shares were down 5.5 percent at $159.00, while Citi fell 2.2 percent $66.26. Wells Fargo jumped 3.1 percent to $57.72.