JPMorgan Chase on Friday beat analysts’ estimates for third-quarter profit and revenue as the bank earned more interest income than expected while borrowing costs were lower than expected.
Here’s what the company reported:
- Merits: $4.33 per share
- Revenue: $40.69 billion versus an LSEG estimate of $39.63 billion
The bank said profit rose 35% from a year ago to $13.15 billion, or $4.33 per share. This per share figure includes 17 cents in securities losses and 22 cents in legal fees. It was not immediately clear what items were included in LSEG’s earnings estimate of $3.96 per share.
Revenue rose 21% to $40.69 billion, helped by stronger-than-expected net interest income. That metric rose 30% to $22.9 billion, beating analysts’ expectations by about $600 million. At the same time, the loan provision was $1.38 billion, well below the estimate of $2.39 billion.
JPMorgan’s retail banking division posted a 36% rise in profits to $5.9 billion, driven by higher net interest income and the acquisition of First Republic. The corporate and investment bank reported a 12% drop in profits to $3.1 billion due to declining trading and advisory revenue.
JPMorgan shares rose 1.5% on Friday following the report.
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JPMorgan shares have outperformed a regional bank ETF this year.
Uncertain times
CEO Jamie Dimon acknowledged that the largest U.S. bank by assets is “overearning” in net interest income and borrowing costs are “below normal,” both of which will normalize over time. While rising interest rates surprised some smaller rivals this year and led to turmoil among regional lenders in March, JPMorgan has weathered the turmoil well so far.
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Dimon warned that while American consumers and businesses are doing well, households are reducing their cash holdings and that tight labor markets and “extremely high national debt” could mean interest rates could rise even further from here .
“The war in Ukraine, exacerbated by last week’s attacks on Israel, could have far-reaching effects on energy and food markets, global trade and geopolitical relations,” Dimon said. “This could be the most dangerous time the world has seen in decades. While we hope for the best, we are preparing the company for a wide range of outcomes.”
The quarterly report follows a period of uncertainty for US banks.
Bank stocks slumped last month after the Federal Reserve signaled it would keep interest rates high for longer than expected to combat inflation amid unexpectedly robust economic growth. The 10-year Treasury yield, a key measure of long-term interest rates, rose 74 basis points in the third quarter. A basis point is equal to one hundredth of a percentage point.
Higher interest rates affect banks in several ways. The industry was forced to pay for deposits as customers shifted their holdings into higher-yielding instruments such as money market funds. Rising yields cause banks’ bonds to fall in value, resulting in unrealized losses that put pressure on capital. And higher borrowing costs are dampening demand for mortgages and business loans.
Increased guidance
While smaller competitors suffered a decline in their net interest income this year due to higher interest rates, JPMorgan continued to benefit from the interest rate environment.
The bank said Friday that it now expects net interest income to be $88.5 billion this year, compared with a forecast of $87 billion in July. It was the fourth time the bank raised its forecast this year.
During a conference call with analysts, Dimon and CFO Jeremy Barnum criticized U.S. regulators’ efforts to increase the capital levels of banks with at least $100 billion in assets. Without a change, the plan would increase JPMorgan’s required capital by 25%, or $50 billion, the bank said.
“A capital increase of this magnitude is troubling and there is a lot that doesn’t make sense to us,” Barnum said, adding that regulators have repeatedly said that U.S. banks are already well capitalized.
Shares of JPMorgan are up 8.7% this year through Thursday, far outpacing the KBW Bank Index’s 19% decline.
Wells Fargo And Citigroup reported results on Friday that beat sales expectations. Bank of America And Goldman Sachs Report Tuesday, and Morgan Stanley announces results on Wednesday.