JPMorgan Chase & Co comfortably beat Wall Street estimates for third-quarter profit on Tuesday as the largest U.S. bank gained from a boom in trading in financial markets and set aside virtually no provisions for loan losses.
The strong show from JPMorgan, widely seen as a barometer for the health of the broader economy, bodes well for Bank of America and other large lenders reporting this week. Its shares were slightly higher in early trading.
After taking a $10.5 billion hit against future bad loans in the previous quarter, the bank’s management said it was less worried about losses than it was three months ago and set aside just $611 million.
“Our base case has improved a bit from the second quarter,” said CFO Jennifer Piepszak on a post-earnings conference call.
JPMorgan’s management, however, struck a cautionary note, saying that macroeconomic uncertainty remains high and warned that the broader economy would suffer if Congress was not able to strike a deal on the coronavirus stimulus package.
“A good, well designed stimulus package will simply increase the chances that we’ll have better outcomes. But there’s so much uncertainty,” Chief Executive Officer Jamie Dimon said.
“If better outcomes happen, we are over-reserved by $10 billion. If the double-dip happens, we would be under-reserved by $20 billion.”
Trading was another bright spot during the quarter, even as the pandemic decimated the U.S. economy, with thousands of businesses shutting down and the unemployment rate soaring. The economic fallout of the pandemic has triggered one of the worst recessions in decades.
“To us, the single-most important fact is that asset quality remains much more stable than one would have thought in February, March or April … On balance, a very positive start to bank earnings season,” Oppenheimer analysts wrote in a note to clients.
ROBUST NUMBERS
Overall revenue fell slightly to $29.9 billion, but still came in ahead of analysts’ expectations. Revenue from three of its four main reporting lines rose, including trading, which jumped 30% to $6.6 billion.
Strong growth from capital markets and investment banking helped offset declines in its consumer business.
Consumer banking revenue fell 9% to $12.76 billion, hurt mainly by lower interest rates. However, provision for credit losses fell to $794 million, driven mainly by a stronger performance from its cards business.
JPMorgan’s net interest income fell 9% to $13.1 billion as the U.S. Federal Reserve kept rates at nearly zero to offset the impact of the pandemic. Net interest margin fell to 1.82% from 1.99% in the previous quarter.
The lender maintained its forecast for full-year interest income at about $55 billion. It also said adjusted expenses for the full year will be up to $66 billion, worse than its forecast of $65 billion three months ago.
Metrics such as net interest margin are closely watched by investors to show how much central-bank rate policies are affecting income, and how well banks are managing their balance sheets.
JPMorgan’s net income rose to $9.44 billion, or $2.92 per share, in the quarter ended Sept. 30, from $9.1 billion, or $2.68 per share, a year earlier.
Analysts on average had expected earnings of $2.23 per share, according to Refinitiv.
Citigroup Inc also trounced estimates for third-quarter profit as this year’s rollercoaster ride for global financial markets drove a surge in the bank’s trading revenue, countering the impact of ultra-low interest rates.
Goldman Sachs Group Inc, Wells Fargo & Co and Bank of America Corp on Wednesday and Morgan Stanley on Thursday.
(Reuters)
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