Surprising contributor to JPMorgan’s strong 1Q: Auto leasing

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JPMorgan Chase’s banner first quarter was driven primarily by higher income from loans — thanks to the recent interest rate hikes — and strong trading results, but on an earnings call with analysts, Chief Financial Officer Marianne Lake also gave a shout out to a business line that typically gets little attention: auto leasing.

In its earnings report released Friday, the banking giant said that auto leasing assets climbed 28% in the first quarter when compared with a year earlier, to $17.6 billion. That’s significant, particularly given that auto loans — a separate portfolio — increased by less than 1% year over year to $65.9 billion.

Lake said that the expansion of the lease business gave a significant boost to fee income in the quarter and will be one of the “big drivers” of noninterest revenue in the coming year. Its revenue from all other income — the line item under which auto leasing falls — increased by 44% year over year, to $1.1 billion.

JPMorgan has leasing private-label agreements in place with Subaru, Mazda, Jaguar Land Rover and Maserati.

The growth in leasing comes as many banks, including JPMorgan Chase, have pulled back from auto lending amid signs that the sector may be overheating. At Wells Fargo, for example, auto loans declined 16% during the first quarter, to $51.5 billion.

Lenders could be attracted to leasing because it generates more fees than auto lending and because durations on lease agreements are typically shorter, so the value of the collateral does not depreciate as quickly.

JPMorgan is not the only bank that has been intentionally expanding its lease portfolio. U.S. Bancorp in Minneapolis, for example, said in January that its auto leasing assets increased by 26% in 2017.

During the conference call Friday, Lake made clear that the company is counting on fees from credit cards, mortgages and other retail business lines to help drive revenue growth. During the first quarter, noninterest revenue in the company’s consumer and community banking unit rose 25%.

For the coming year, JPMorgan has a goal of boosting fees by 7% from a year earlier, compared to 2017, she said.

Overall net revenue climbed 12% year over year, to $28 billion. Earnings at the $2.6 trillion-asset company took a slight hit due to accounting adjustments tied to the tax overhaul signed into law in December, but still climbed 35% year over year, to a record $8.7 billion.

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