JPMorgan beats Q3 forecast on bonds recovery

JPMorgan Chase has got the big US banks’ earning season off to a solid start, posting record net revenues from its corporate and investment banking division, and a better than expected $6.3bn of net income overall.

While this quarterly net income figure, from revenues of $24.7bn, represented an 8 per cent fall year-on-year, it was significantly better than analysts had been forecasting. Wall Street had been more bearish, expecting net income to come in under $5bn, on revenues of $24.3bn.

JPMorgan shares rose 1.6 per cent in pre-market trading.

Earnings per share were $1.58, well ahead of analysts’ consensus forecasts of $1.39. Some of those forecasts had been as high as $1.53 at the turn of the year, before investors were spooked by a particularly torrid first quarter and hopes began to fade of another interest-rate rise from the US Federal Reserve.

Jamie Dimon, chairman and chief executive, said the “strong” set of results was “testament to the power of our platform and our people.”

One theme of the US banks’ earnings season will be the recovery of profits from bond trading after an unusually weak third quarter last year. Analysts expect Goldman Sachs and Morgan Stanley to post combined net income of $2.82bn for the quarter, 24 per cent higher than a year ago.

At JPMorgan, which has the largest share of bond-trading activity with about 15.1 per cent, the markets and investor services unit produced net revenues of $6.5bn, more than one-fifth higher than a year earlier.

In investment banking, where JPMorgan is also the largest player, revenues were up 6 per cent to $2.9bn.

But in retail banking, the performance of the big US lenders is expected to be more subdued, with rising delinquencies in car loans and credit cards taking a bite out of steady profits from mortgages and commercial real estate business.

Before JPMorgan’s earnings were published, combined net income for the big universal banks — JPMorgan plus Bank of America, Citigroup and Wells Fargo — was expected to drop about 13 per cent from a year earlier, to $17.2bn.

JPMorgan said net profits at its own consumer and community banking division dropped 16 per cent from a year earlier to $2.2bn, after a big charge-off related to one client and a “modest” increase in reserves for mortgage servicing.

Analysts are likely to grill JPMorgan executives later this morning on the impact of the sham-account scandal at Wells Fargo, where staff were found to have fabricating account openings to hit sales targets. It has prompted many to wonder how far beyond Wells aggressive sales practices have spread.


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