JPMorgan Chase reported a 17% year-on-year decline in quarterly net profit, a smaller decline than analysts had expected as record lending revenues helped offset a continued slowdown in investment banking and a provision of 1.5 billion dollars to cover bad credit.
The largest U.S. bank by assets said Friday its third-quarter net profit was $9.7 billion, down from $11.7 billion in the same period last year. The fall was less severe than analysts’ estimates for net profit of $8.9 billion, according to Bloomberg data.
Revenue rose 10% to $33.5 billion as increases in Federal Reserve interest rates helped JPMorgan earn record lending revenue.
Net interest income – the difference between what banks pay on deposits and what they earn on loans and other assets – was $17.6 billion, up 34% year-on-year and a year earlier. new record for the bank. JPMorgan also raised its net interest income target for 2022, excluding its trading division, to about $61.5 billion from more than $58 billion previously.
“The ‘Blow-Out’ quarter would be an understatement,” Oppenheimer analysts wrote of the bank’s earnings. JPMorgan’s stock closed 1.7% higher in New York on Friday, outperforming a 2.4% decline for the S&P 500.
While banks such as JPMorgan are currently profiting from rising rates, there are growing fears that this action by the Fed could end up tipping the US economy into a recession. This is the main reason why the bank raises reserves to cover possible bad debts.
JPMorgan said credit conditions were “still sound” but warned excess savings in consumer checking accounts would be spent by mid-2023.
“And then, of course, you have inflation, higher rates, higher mortgage rates, oil, volatility, war,” JPMorgan chief executive Jamie Dimon told analysts. “So those things are out there, and it’s not a crack in the current numbers. It’s pretty predictable. It will put a strain on the future numbers.
In addition to provisions for credit losses, JPMorgan also suffered a loss of $959 million on investments it holds, which Chief Financial Officer Jeremy Barnum said was “the result of repositioning the portfolio by selling US treasury bonds and mortgages”.
JPMorgan kicked off the US banking earnings season alongside Morgan Stanley, Citigroup and Wells Fargo.
Wells saw a more than 30% drop in profits in its third quarter, while Citi’s profits fell 25%. Morgan Stanley reported a 30% drop in year-over-year net profit, its longest streak of declines since 2019, as it continues to suffer from falling investment banking fees.
At JPMorgan, investment banking revenue fell 43% to $1.7 billion from analysts’ estimates of $1.6 billion.
Revenue from JPMorgan’s trading division, which has benefited from strong activity during recent market volatility, rose 8% to $6.8 billion, remaining above pre-pandemic levels. Analysts forecast revenue of $6.6 billion.
The bank said its Common Equity Tier 1 (CET1) capital ratio at the end of the quarter was 12.5%, down from 11.9% three months earlier and in line with a new higher requirement. JPMorgan suspended its stock buyback in July to hit the higher benchmark for financial strength.
Dimon said the bank aims to hit its CET1 target of 13% in the first quarter of 2023 and that “we expect to be able to resume share buybacks early next year.”