JPMorgan Beats As Trading Revenue Solid, Bad Loan Apocalypse Fails To Materialize

JPMorgan kicked off big bank earnings on Tuesday, reporting adjusted revenue of $29.94 billion, ahead of estimates. The market was looking for $28.39 billion. The range was $27.15 billion to $29.31 billion.

Q3 EPS came in at $2.92. That too looks like a beat. Consensus was looking for something in the neighborhood of $2.23. Net income of $9.4 billion was up 4%. Net interest income was $13.1 billion, down 9%, thanks to lower rates.

The bank, along with Bank of America, trimmed its outlook for net interest income last month. “For NII, we’re revising our guidance to about $55 billion for the full year and that’s primarily because we’re seeing higher payment rates in Card and so lower outstandings,” CFO Jennifer Piepszak said, at the Barclays global financial services conference. “That, obviously, has a positive offset in credit, so again [it’s] one of the positive things we’re seeing, but [it’s] a headwind for NII.”

“There is still an enormous amount of uncertainty about how this will ultimately unfold, particularly for the consumer,” Piepszak went on to say, adding that “for the third quarter… things are looking better than we would have thought”.

Jamie Dimon reinforced those sentiments Tuesday, adopting a generally upbeat tone, but flagging “significant uncertainty in the environment.” JPMorgan, he said, “is unwavering in its commitment to drive an inclusive economic recovery.”

In the third quarter, the provision for credit losses was $611 million. That is much lower than the $2.3 billion the market expected, and included $569 million of net reserve releases.

Headed into Q3 results, analysts saw JPMorgan, Wells Fargo, BofA, and Citi earmarking an additional $10 billion for bad loans this quarter as efforts on the part of the Fed and Congress to blunt the impact of the pandemic on Main Street fall short.

With gridlock in D.C. dragging on and no grand bargain on another fiscal stimulus package in sight, some fear the worst is yet to come for everyday Americans and small businesses.

Sill, headline unemployment is now lower than what most banks projected when building reserves, so it’s possible the commentary from executives will strike an upbeat tone.

Speaking of upbeat, trading was poised to deliver yet another big windfall for Wall Street after a blockbuster second quarter and JPMorgan didn’t disappoint in that regard.

Total Markets revenue was $6.6 billion, up 30% and better than the $6.15 billion analysts expected. Folding in securities services, you get $7.8 billion.

FICC revenue, which posted an absurd 99% YoY gain in Q2, rose 29% in the third quarter to $4.6 billion. That’s ahead of the $4.29 billion the market was looking for. The bank cites “strong performance across products.”

Equities revenue was $2 billion, a 32% gain, while the $1 billion in securities services was flat thanks to compression in deposit margins.

IB revenue was $2.1 billion. That’s up 12%. JPMorgan cites a 9% rise in fees on higher equity and debt underwriting. Advisory fees were lower.

All told, CIB net income rose 52% on revenue of $11.5 billion in Q3, on the heels of a record second quarter.

Revenue in Commercial banking was flat and net income was up 15% to $1.1 billion. This comes after a net loss of $691 million in the previous period on reserve builds. Encouragingly, the bank says the provision for credit losses was a net benefit of $147 million, “driven by reserve releases across multiple sectors.” Net charge-offs were $60 million.

In Consumer, net income fell 9%, as did revenue. Last quarter, Consumer posted a $176 million net loss on falling revenue and rising credit costs thanks to reserve builds in Card, Home, CBB and Auto. This quarter, net income was $3.9 billion. So that’s a marked improvement, to say the least.

The bank notes deposit margin compression, offset partially by higher deposit balances (i.e., savings). Again, it looks like the worst fears for bad loans and provisioning weren’t realized. “The provision for credit losses was $794 million, down $517 million and included a $300 million reserve release in Home Lending due to portfolio run-off, compared to a net reserve build for CCB of $50 million in the prior year,” the bank says, adding that net charge-offs in Consumer were $1.1 billion, down $167 million YoY.

“In Consumer & Community Banking, we continue to add deposits, up 28% versus last year,” Dimon remarked. “And based on the most recent FDIC data, we ranked #1 in US retail deposits for the first time ever.”

All in all, this seems likely to allay at least some fears of a doomsday scenario vis-à-vis souring loans and the beleaguered American consumer.

But that surely won’t stop anyone (including me, probably) from insisting that one way or another, the structural damage from the pandemic will manifest in adverse outcomes without the proper fiscal support from Washington.


 

Leave a Reply to runamokCancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

2 thoughts on “JPMorgan Beats As Trading Revenue Solid, Bad Loan Apocalypse Fails To Materialize

  1. If the other banks come in with earnings beat on par with JPM there’s no way the pandemic relief bill of 2.2T sees the light of day.

  2. Wow. So they beat on trading revenue and beat expectations.

    JP Morgan is lead as though it is an ongoing, criminal enterprise. The penalty total on JPMorgan since 2000 is almost $35B. Amazingly, even with penalties and a history of criminal activity, i.e., screwing over people, they still manage to make so much money year over year. How in the world do they do it?

NEWSROOM crewneck & prints