JPMorgan posts surprise jump in profit on lower credit costs

The biggest US bank posted a surprise increase in earnings, fuelled by a 30% jump in markets revenue

NEW YORK • JPMorgan Chase & Co, in its third quarter (3Q) under the shadow of the pandemic, showed that the surge in trading is holding up — and so are borrowers.

The biggest US bank posted a surprise increase in earnings, fuelled by a 30% jump in markets revenue as elevated volume kept its stock and bond traders busy. The lender also defied expectations by cutting its reserve for loan losses by US$569 million (RM2.33 billion), after adding US$20 billion to the allowance in the first half (1H), as charge-offs of bad loans were lower than a year ago.

Those improvements and a 9% gain in investment-banking fees led to the most profitable quarter of 2020.

“The corporate and investment bank continues to be a big driver of firm performance,” CEO Jamie Dimon said in a statement yesterday. “We maintained our credit reserves at US$34 billion given significant economic uncertainty and a broad range of potential outcomes.”

The Covid-19 pandemic has wreaked havoc on the global economy, and bank investors have been waiting to see how much that translates into losses from soured loans. Delinquencies have remained low so far, helped by lenders’ forbearance programmes and government stimulus efforts, but bank executives have warned that the effects could drag on for years.

Smaller Provisions

JPMorgan’s earnings hint at what’s to come when the rest of Wall Street reports results this week. The nation’s four biggest lenders probably set aside about an additional US$10 billion for bad loans in the 3Q, according to analysts’ estimates compiled by Bloomberg prior to yesterday’s results.

CFO Jennifer Piepszak said in September that the bank’s 3Q trading revenue would probably jump 20% from last year. The firm surpassed that as its US$6.6 billion total was higher than the US$6.15 billion analysts were expecting.

Profit climbed 4% to US$9.44 billion from US$9.1 billion a year ago. The New York-based bank took a one-time charge to help cover the cost of a US$920.2 million fine to resolve US authorities’ claims of market manipulation by its precious metals and Treasury markets trading desks. JPMorgan previously said it had set aside about half of what it needed for the fine.

Other Key Results

• The bank’s reserve for credit losses was still almost US$34 billion, as the bank said in September it was expecting loan defaults to surge in the 1H of next year as the effect of the government’s stimulus measures start to wear off.

• The total provision for credit losses was US$611 million, 94% lower than the 2Q and far below than the US$2.38 billion analysts had estimated.

• Net interest income fell 9% to US$13.1 billion, from US$14.2 billion a year earlier. Analysts were expecting it to fall 6% from last year to US$13.4 billion.

• The firm’s investment bankers generated US$2.2 billion advising on mergers and underwriting stock and bond offerings, 9% more than last year and more than analysts were expecting. A rebound in IPO activity helped JPMorgan’s equity-capital markets bankers generate US$732 million, their best 3Q ever. — Bloomberg