JPMorgan Chase posts surprise jump in profit on lower credit costs

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JPMorgan Chase, in its third quarter under the shadow of the pandemic, showed that the surge in trading is holding up — and so are borrowers.

The biggest U.S. bank posted a surprise increase in earnings, fueled 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 $569 million, after adding $20 billion to the allowance in the first half, as charge-offs of bad loans were lower than a year ago.

Jamie Dimon, chairman and CEO, JPMorgan Chase
“We maintained our credit reserves at $34 billion given significant economic uncertainty and a broad range of potential outcomes," JPMorgan Chairman and CEO Jamie Dimon says.

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

“The corporate & investment bank continues to be a big driver of firm performance,” Chief Executive Jamie Dimon said in a statement Tuesday. “We maintained our credit reserves at $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 programs and government stimulus efforts, but bank executives have warned that the effects could drag on for years.

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 $10 billion for bad loans in the third quarter, according to analysts’ estimates compiled by Bloomberg prior to Tuesday’s results.

Chief Financial Officer Jennifer Piepszak said in September that the bank’s third-quarter trading revenue would probably jump 20% from last year. The firm surpassed that as its $6.6 billion total was higher than the $6.15 billion analysts were expecting.

Profit climbed 4% to $9.44 billion from $9.1 billion a year ago. The New York-based bank took a one-time charge to help cover the cost of a $920.2 million fine to resolve U.S. 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.

Here are other key results:

  • The company’s reserve for credit losses was still almost $34 billion, as the bank said in September it was expecting loan defaults to surge in the first half of next year as the effect of the government’s stimulus measures start to wear off.
  • The total provision for credit losses was $611 million, 94% lower than the second quarter and far below than the $2.38 billion analysts had estimated.
  • Net interest income fell 9% to $13.1 billion, from $14.2 billion a year earlier. Analysts were expecting it to fall 6% from last year to $13.4 billion.
  • The firm’s investment bankers generated $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 $732 million, their best third quarter ever.
Bloomberg News
Earnings Loan-loss provisions Credit quality Jamie Dimon JPMorgan Chase