JPMorgan Chase takes US$2.4b tax hit, profit tumbles by 37pc
Friday, January 12, 2018
JP Morgan Chase & Co said its fourth-quarter results fell by 37 percent from a year ago, as the bank took a significant one-time charge to its results due to the recently passed Trump tax bill.
JPMorgan said today it earned US$4.23 billion in the fourth quarter, or US$1.07 a share, down from US$6.73 billion, or US$1.71 a share, in the same period a year earlier. Excluding a US$2.4 billion charge tied to the tax bill, the bank would have earned US$6.7 billion, or US$1.76 a share, which beat analysts' forecasts of who US$1.69 a share.
Like many banks after the 2008 financial crisis, JPMorgan had billions of dollars of what are known as tax-deferred assets on its balance sheet. These are basically credits it could have used to pay future income taxes. These credits built up after the big Wall Street banks took billions of dollars in losses from bad mortgages and other toxic assets.
Because the new tax bill lowered the corporate tax rate to 21 percent, the value of those tax-deferred assets had to be written down. That US$2.4 billion one-time charge covers the change in value of those assets. Other banks, like Bank of America, Citigroup and Goldman Sachs are all expected to take similar actions as they report their results over the next couple of weeks.
Despite the write down, JPMorgan Chase chief executive Jamie Dimon said in a statement that the new tax bill is a "significant positive for the country.''
"U.S. companies will be more competitive globally, which will ultimately benefit all Americans,'' Dimon said.
JPMorgan now expects its effective corporate tax rate to be roughly 20 percent. In comparison, JPMorgan paid an effective tax rate of 28.4 percent in 2016 and a tax rate of 31.9 percent in 2017.
Outside of the tax bill, JPMorgan's results were positively impacted by rising interest rates. The Federal Reserve has raised its benchmark interest rate four times between December 2016 and December 2017, which allows banks to charge more for customers to borrow. The bank's net interest income was US$13.03 billion in the quarter, up 11 percent from a year ago.
But other parts of JPMorgan's businesses, most notably its trading desks, did not fare as well in the quarter. Last year was an abnormally quiet year for financial markets. Less volatility means less trading, which in turn means less revenue for the banks since fewer investors are paying trading commissions and traders can't take advantage of significant price changes. JPMorgan's trading division reported revenue of US$4.4 billion in the quarter, down 22 percent from a year earlier. Like previous quarters, JPMorgan's stock trading revenues were steady to flat, while commodities, currencies and bond trading were the most negatively impacted. They were down 27 percent.-AP