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JPMorgan Crushes Estimates as Pro-Growth Agenda Fuels Investment Bank

James Langford

JPMorgan Chase posted higher profit than Wall Street expected as political upheaval in Western economies drove fixed-income trading, and investment-banking fees touched a first-quarter record.

Revenue from trading bonds, currencies and commodities climbed 17% to $4.22 billion in the three months through March, the New York-based lender said in a statement. Profit of $1.65 a share for the company as a whole compared with the $1.52 average of analysts' estimates, and net income rose 17% to $6.45 billion.

The bond bonanza marks a dramatic turnaround from the first quarter of 2016, when the big U.S. banks' results were soured by fears of a slowdown in the Chinese economy and tumbling crude prices that raised the prospect of mass bankruptcies by energy producers. Since then, China has managed to stave off a big devaluation of its currency, while a recovery in oil has allowed lenders to reverse big loan-loss reserves they had previously booked.

Then in November, Trump's election sparked optimism that government stimulus would turbo-charge the U.S. economy and kindle loan growth, and that the new president would roll back costly regulations and capital requirements enacted in the wake of the 2008 financial crisis. 

CEO Jamie Dimon said he remains optimistic about the administration's plans, despite some setbacks for Trump early this year, including failure to win sufficient Congressional backing for an Obamacare replacement bill, 

"When you have new President and they get going, the nine months after the 100 days is going to be a sausage-making period," he said on a call with analysts. 

"It is a pro-growth agenda," he added, and "if that took place, it would help all Americans. To expect it to be smooth sailing, that would just be silly."

The bank's stock fell 1.2% to $84.40 in New York trading on Thursday, widening this year's losses to 2.2%. 

While JPMorgan's trading businesses have boomed amid recent geopolitical shifts, some of the growth is due to business won from competitors, the company noted. Continuing to expand its slice of the market at the same levels is likely to prove difficult.

"If you look back over 2016, and even 2015 and 2016, it's true and clear that we've gained reasonable share not just in fixed income -- but also in equities," CFO Marianne Lake said on the call. "We will defend that share, but the competition is back and healthy and you can't expect us to continue to gain share at those kind of levels. We want to defend it, but it's a healthy competitive market right now."

On average, total trading revenue for Wall Street firms probably jumped 15% from a year earlier, Deutsche Bank estimated before earnings reports began. Investor optimism over Trump's proposals to stimulate the economy with tax cuts and spending led to greater confidence in corporate bonds during the first quarter, driving price gains.

A boom in new debt issuance by companies drove a frenzy of transactions in the secondary market. Gains from "health" fixed-income growth are likely to be pared slightly by weaker revenue from stock trading, however, Susan Roth Katzke of Credit Suisse predicted in a note to clients last week. Revenue from equity trades rose 2% at JPMorgan, to $1.61 billion.

The major banks on average probably saw a 20% jump in investment-banking fees, as more companies sold shares through initial public offerings amid a surge in U.S. stock-market valuations, analysts said. The fees climbed 37% to $1.8 billion at JPMorgan.

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