JPMorgan Chase tops analysts’ estimates for third-quarter profit on gains from interest income

JPMorgan Chase on Friday posted third-quarter results that topped analysts’ estimates for profit and revenue as the firm reaped more than expected in interest income.

Here are the numbers:

• Earnings: $3.12 a share, may not be comparable with the $2.88 estimate, according to Refinitiv.
• Revenue: $33.49 billion, vs. $32.1 billion estimate.

The biggest U.S. bank by assets said profit fell 17% from a year earlier to $9.74 billion, or $3.12 a share, as the firm added to reserves for bad loans by $808 million. Third-quarter revenue jumped 10% to $33.49 billion, thanks to higher interest rates as the Federal Reserve battles inflation.

The bank said net interest income surged 34% in the quarter to $17.6 billion, due to higher rates and an expanding book of loans. That topped analysts’ expectations by more than $600 million.

Shares of the New York-based bank rose 2.3% in premarket trading.

JPMorgan CEO Jamie Dimon noted that while consumer and businesses were financially robust in the period, the economic picture was darkening:

“There are significant headwinds immediately in front of us – 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,” Dimon said in the statement. “While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes.”

Early signs of those headwinds began appearing in the quarter. JPMorgan booked $959 million in losses on securities in the quarter, reflecting the broad declines in financial assets in the quarter, sapping earnings by 24 cents per share.

JPMorgan, the biggest U.S. bank by assets, will be watched closely for clues on how banks are navigating a confusing environment.

On the one hand, unemployment levels remain low, meaning consumers and businesses have little difficulty repaying loans. Rising interest rates mean that banks’ core lending activity is becoming more profitable. And volatility in financial markets has been a boon to fixed income traders.

But investors have dumped bank shares lately, pushing JPMorgan and others to fresh 52-week lows this week, on concern that the Federal Reserve will inadvertently trigger a recession. Investment banking and mortgage lending revenue has fallen sharply, and firms could disclose write-downs amid the decline in financial assets.

On top of that, banks are expected to begin to boost reserves for loan losses as concerns of a recession increase; the six biggest U.S. banks by assets are expected to set aside a combined $4.5 billion in reserves, according to analysts.

That aligns with the cautious tone from Dimon, who said this week that he saw a recession hitting the U.S. in the next six to nine months.

Last month, JPMorgan president Daniel Pinto warned that third-quarter investment banking revenue was headed for a decline of up to 50%, thanks to the collapse in IPO activity and debt and equity issuance. Helping offset that, trading revenue was headed for a 5% jump from a year earlier on strong fixed income activity, he said.

As a result, investors should expect a mishmash of conflicting trends in the quarter and a wider-than-usual range of outcomes among the six biggest U.S. institutions.

Shares of JPMorgan have dropped 31% this year through Thursday, worse than the 25% decline of the KBW Bank Index.

Morgan Stanley posted results below expectations on sharp declines in investment banking and investment management revenue. Wells Fargo and Citigroup are also scheduled to report results Friday, followed by Bank of America on Monday and Goldman Sachs on Tuesday.

This story is developing. Please check back for updates.