JPMorgan Chase reported a 17 percent year-over-year decline in quarterly net income, a smaller decline than analysts expected as record lending income helped offset the ongoing slowdown in investment banking and a $1.5 billion provision to cover bad loans.
The largest U.S. bank by assets announced Friday that net income for the third quarter was $9.7 billion, compared with $11.7 billion for the same period last year. According to Bloomberg data, the decline was less severe than analysts’ estimates for net income of $8.9 billion.
Revenue rose 10 percent to $33.5 billion as Federal Reserve interest rate hikes allowed JPMorgan to post record loan origination revenues.
Net interest income — the difference between what banks pay for deposits and what they earn on loans and other assets — was $17.6 billion, up 34 percent from a year earlier and a new record for the bank. JPMorgan also raised its target for 2022 net interest income excluding its trading arm to about $61.5 billion from previously more than $58 billion.
“‘Blow-Out’ quarter would be an understatement,” Oppenheimer’s analysts wrote of the bank’s earnings. JPMorgan stock closed 1.7 percent higher in New York on Friday, beating the S&P 500’s 2.4 percent decline.
With banks like JPMorgan now benefiting from rising interest rates, there are growing concerns that these Fed actions will eventually plunge the US economy into recession. That’s the main reason why the bank is building up reserves to cover potential bad loans.
JPMorgan said credit conditions were “still healthy” but warned excess savings in consumer checking accounts would be spent into mid-2023.
“And then of course you have inflation, higher interest rates, higher mortgage rates, oil, volatility, war,” JPMorgan chief executive Jamie Dimon told analysts. “So these things are out there, and that’s not a crack in the current numbers. It’s pretty predictable. It will weigh on future numbers.”
In addition to the provisions for loan losses, JPMorgan also took a $959 million loss on the investments it held, which CFO Jeremy Barnum said was “a result of the portfolio’s repositioning through the sale of US Treasuries and mortgages.”
JPMorgan started the US bank reporting season alongside Morgan Stanley, Citigroup and Wells Fargo.
Wells posted a profit decline of more than 30 percent in the third quarter, while profit at Citi fell 25 percent. Morgan Stanley reported a 30 percent year-over-year decline in net income, the longest streak of declines since 2019, as the company continues to suffer from a decline in investment banking fees.
At JPMorgan, investment banking revenue fell 43 percent to $1.7 billion, compared to analyst estimates of $1.6 billion.
Revenue in JPMorgan’s trading division, which has benefited from strong activity during recent market volatility, rose 8 percent to $6.8 billion, remaining above pre-pandemic levels. Analysts had forecast sales of $6.6 billion.
The bank said its Common Equity Tier 1 (CET1) ratio was 12.5 percent at the end of the quarter, up from 11.9 percent three months earlier and in line with a new higher requirement. JPMorgan suspended its share buyback in July to meet the higher financial strength benchmark.
Dimon said the bank is aiming to meet its 13 percent CET1 target in the first quarter of 2023 and that “we hope to resume share buybacks early next year.”