“There are significant headwinds immediately in front of us,” Jamie Dimon said Friday, in remarks accompanying the bank’s Q3 results.
Dimon spent the last several days warning about the prospects of a US recession and pontificating about the possible depth of the bear market in equities. At the same time, he went out of his way to laud the US consumer.
If the US is in a recession, it wasn’t immediately obvious from JPMorgan’s quarter. Net income did drop 17% thanks to a reserve build of $808 million (versus a net release of $2.1 billion last year) and a near $1 billion net loss on investment securities (from sales of Treasurys and MBS). At $1.5 billion, the provision for credit losses was higher than anticipated ($1.22 billion).
Beyond that, there was plenty for markets to like if they (markets) were so inclined.
Dimon said the bank intends to restart buybacks early next year. The bank temporarily halted repurchases over the summer, citing higher capital requirements. Dimon was displeased, to put it mildly. “While we unfortunately still don’t know the ultimate effect of changes in capital requirements due to the completion of Basel III, through our earnings power and demonstrated ability to manage down risk-weighted assets, we expect to reach our current target CET1 ratio of 13%, which includes a 50bps buffer, in the first quarter of 2023,” he said Friday, in what I think it’s fair to call a passive aggressive assessment. He’ll likely be more direct on the call. Although Dimon made no ironclad guarantees, investors will likely cheer the pseudo-guidance on buyback resumption.
As for the numbers, they were fine where they needed to be. Investment banking revenue was $1.71 billion (figure below).
That was down sharply (43%) from last year, but a big slowdown in IB was a given this quarter. What mattered was that $1.71 billion was a beat. Consensus expected $1.59 billion. Notably, IB improved from Q2.
“We maintained our #1 ranking in Global Investment Banking, although fees were down 47% compared to a record prior year,” Dimon remarked.
In Markets, FICC beat, as higher revenue in “macro businesses,” more than made up for a drop in securitized products. FICC revenue of $4.47 billion rose 22% YoY, and topped the $4.11 billion analysts expected.
Equities was a slight miss ($2.3 billion versus $2.48 billion seen), but I doubt anyone’s going to worry about that. Overall, markets revenue of $6.77 billion rose 8% YoY, and counted as a decent beat.
The bank’s net interest income rose 34% on higher rates to $17.6 billion, considerably ahead of the $16.9 billion expected. Excluding Markets, the figure was $16.9 billion, up 51%.
Loans were $1.11 trillion, basically in line. Firmwide, average loans were up 7%. They rose 13% in Commercial on higher revolver utilization and new originations.
In Consumer & Community, average deposits rose 9%, while debit and credit card sales were up 13%. I’d note that mortgage originations were down 71% YoY (figure below).
That’s a side note. Sort of. It’s a reflection of market conditions, sure, but I do wonder how excited (or not) the bank is about mortgages at this juncture. Originations in CCB fell 45% on a 12-month basis last quarter.
Panning all the way back out, JPMorgan beat on the top line. Adjusted revenue of $33.5 billion was comfortably ahead of estimates. EPS of $3.12 was fine. The bank expects $61.5 billion in ex-CIB NII for the full year, compared to previous guidance of more than $58 billion.
Ironically (albeit not surprisingly, given his penchant for forecasting economic storms) the most foreboding part of JPMorgan’s results might’ve been Dimon’s macro assessment. “In the US, consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” he said, before cautioning on “stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks and the fragile state of oil supply and prices.”
Fortunately, JPMorgan is ready. “While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes,” Dimon said. “Even in the most challenging of times.”
