New York, Oct. 13 (BUS): JPMorgan Chase & Co (JPM.N) beat analysts’ earnings estimates on Wednesday, thanks to record revenue in some investment banking and a brighter economic outlook that allowed the largest US bank to release funds. It was set aside for potential loan losses during the coronavirus pandemic.
JPMorgan’s third-quarter earnings were 24% higher than the same period last year due to these factors, but analysts were more enthusiastic about signs that customers are returning to spending and investing.
Average bank loans and deposits rose, as did credit card spending, helping JPMorgan’s lending income rise 2.5% from the second quarter, Reuters reports.
Executives were cautiously optimistic that the economy was finally on a healthy path after 19 months of pandemic-related illnesses, business closures, travel restrictions and stay-at-home tendencies. They predicted that demand for loans may not change substantially until next year, which is the earliest, but they are encouraged by early signs that the world is back on track.
What we really want is good growth now. Those are big numbers. By the end of 2022 people expect 4% unemployment, wages are going up, and jobs are plentiful. When Coming out of COVID, we all have to thank our lucky stars.”
Investors often view JPMorgan not just as a big US bank, but as a symbol of how well the economy and global markets are doing. The bank has a significant presence in virtually all traditional lending businesses – from mortgages to commercial loans – and is one of the largest investment banks on Wall Street and provides insight into multinational corporations through its capital markets and treasury services operations.
The highlight of JPMorgan’s third quarter was the corporate and investment bank division, where advisory fees nearly tripled due to strong performance in mergers and acquisitions and equity underwriting, fueled in part by a series of initial public offerings.
During the quarter, JPMorgan maintained its position as the second largest provider of merger and acquisition advisory worldwide after Goldman Sachs Group Inc (GS.N), based on fees, according to Refinitiv.
JPMorgan’s decision to release $2.1 billion in credit reserves also boosted its earnings. Dimon and many analysts and investors tend to remove reserve volatility from their “core” earnings analysis, because it is based on accounting standards and does not reflect new money coming in.
Overall, JPMorgan’s earnings rose to $11.7 billion, or $3.74 per share, in the quarter ended September 30, compared with $9.4 billion, or $2.92 per share, a year earlier. Excluding the release of the reserve and income tax benefits, its profit would be $9.6 billion, or $3.03 per share.
Analysts, on average, expected earnings of $3.00 per share, according to Refinitiv.
JPMorgan’s revenue rose 2% to $30.4 billion in the first quarter. Analysts, on average, expected revenue of $29.8 billion.
The Bank maintained its guidance that it expects net interest income for the year to be approximately $52.5 billion.
JPMorgan shares were down 2.3% in morning trading, with other major banks also falling. Its shares rose about 5% in the weeks leading up to the results, along with other major banks, on hopes of higher interest rates after comments from the Federal Reserve.
Handling shots
Capital market firms helped major Wall Street banks during the pandemic, as investors scrambled to respond to news about the pandemic and companies needed help raising capital or hedging business risks. Recently, with trading revenues waning, deal-making activity has rebounded, as companies decide to combine special purpose acquisition companies (SPACs) or go public, and start-ups have listed stocks for the first time.
JPMorgan’s corporate and investment division reported a 6% increase in net revenue to $12.4 billion. The Consumer and Community Banking division reported a 2% drop in net revenue to $12.5 billion. These two companies are swapped for the most amount in terms of revenue, depending on the quarter.
The lender’s commercial banking operations reported an 8% increase in net revenue, to $2.5 billion, while Asset & Wealth Management reported a 20% increase, to $4.3 billion.
On a conference call with analysts, management primarily answered questions about JPMorgan’s economic outlook and what the quarter’s statistics indicate about the next few quarters. They wanted to know when the bank’s lending income would benefit, and how it might spread all the cash it had.
For example, card spending has gone up significantly, which would usually be a good sign for banks. But it didn’t always translate into higher profits, because individuals saved money during the pandemic while stuck at home, allowing them to pay balances and stay on bills — thus avoiding late interest payments or fees.
However, analysts said they were encouraged by the bank’s performance in an environment that is still not ideal for major banks, with low interest rates, a challenging regulatory environment and risks from potential new waves of coronavirus infections.
“JPMorgan has kicked off reporting season, setting a clear positive tone for what the implementing bank can offer,” said Susan Katzky, an analyst at Credit Suisse.
Other major US banks including Bank of America (BAC.N), Citigroup (CN), Wells Fargo (WFC.N) and Morgan Stanley (MS.N) will announce their results on Thursday, while Goldman Sachs (GS.N) and Wall Street’s busiest bargain maker will wrap up earnings season on Friday.