JP Morgan Chase
JP Morgan posted a strong set of results for the third quarter that beat analysts’ estimates for both top and bottom line, despite a challenging macro operating environment as a result of the Covid-19 pandemic .
Third quarter profits of $9.94 billon, equivalent to $2.92 earnings per share, exceeded consensus of $2.23 per share. Revenue growth was 4% higher than market expectations and tangible book value per share up 6% y-o-y.
The bright spot for the bank, was the trading division with revenue up 30%, with heightened activity in fixed income and equities, whilst investment banking revenue rose 12% on the back of strong underwriting fees, in a buoyant Investment banking environment. Jamie Dimon, group CEO said that “the corporate and investment bank continues to be a big driver of performance”.
After substantially bolstering reserves by $20 billion in the first half of the current year, the bank unexpectedly reduced its reserves for credit losses by $569 million with JP Morgan’s improved optimism for a recovery in the US economy.
Delinquencies in the credit book have remained low thus far as a result of stimulus efforts by the Fed and robust government spending, which are both expected to be a feature of future policy. Loan demand still remains weak, which is a worry for the market, and is a factor of a still fragile recovery. Around 92% of accounts that came out of provisions are now currently up to date on their payments. During the recent conference call the CEO said that JPM could be over-reserved by $10 billion to cover bad loans, with the reserves standing at $34 billion, if the economy continues its current rate of recovery. The loan-loss reserves reduction of $569 million in the third quarter was not expected by the market, and appeared to be due to the positive results of the asset quality as well as that of tight credit management initiatives. This also had had a positive impact on the group’s profitability, as did low interest rates.
JP Morgan was recently granted the right to open branches in ten additional states in the US, which is a testament to the financial strength of the group in a period of high volatility and uncertainty. In addition, the company hopes to get permission to be able to buy back its own shares in due course, which should be a positive for shareholders.
The company has had a sound track record and consistent delivery of returns to shareholders over the past few years. Its diverse income streams from investment and consumer banking are a positive aspect of its resilient business model, as is the hands-on leadership of the chief executive Jamie Dimon.
