JPMorgan profit beats estimates on investment banking strength, higher interest income

JPMorgan Chase’s third-quarter profit beat expectations as strong investment banking performance and rising interest payments offset a hit from bigger loan loss provisions, sending its shares up before the market open.

The prospect of monetary easing by the Federal Reserve has spurred a rally in equities during the third quarter, while renewed economic optimism prompted companies to pursue acquisitions or issue debt and equity.

Investment banking fees surged 31 per cent, double the management’s guidance of 15 per cent last month. A strong show in equities pushed trading revenue up 8 per cent, higher than the up to 2 per cent guidance the management had given last month.

Net interest income (NII) – the difference between it earns on loans and pays on deposits – grew 3 per cent in the quarter.

The bank also raised its NII forecast to $92.5 billion, compared with $91 billion earlier and higher than the $91.05 billion analysts polled by LSEG had forecast.

JPMorgan CEO Jamie Dimon maintained his guarded tone on the economy.

“We have been closely monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse,” Dimon said.

“There is significant human suffering and the outcome of these situations could have far-reaching effects on both short-term economic outcomes and more importantly on the course of history.”

Tensions in the Middle East have escalated this month, with Israel clashing with Iran and the Lebanese group Hezbollah, while it battles Hamas in Gaza.

PROVISIONS JUMP

Banks are building up stockpiles – which act as a safeguard when borrowers default on their loans – to typical levels as consumers deplete the savings they built up during the pandemic.

JPMorgan set aside $3.11 billion for likely credit losses, compared with $1.38 billion a year ago, even though consumers’ financial health has withstood elevated interest rates and fears over unemployment.

Overall, profit fell 2% to $12.90 billion for the three months ended Sept. 30. Earnings per share of $4.37, however, exceeded expectations of $4.01, according to estimates compiled by LSEG.

Dimon said the bank was awaiting new rules on the so-called Basel III endgame proposals, which would hike the capital big banks are required to hold.

“We believe rules can be written that promote a strong financial system without causing undue consequences for the economy, and now is an excellent time to step back and review the extensive set of existing rules.”

The Fed is watering down the contentious proposal after months of industry pushback. The draft rules would raise big banks’ capital requirement by 9 per cent instead of 19 per cent under the original proposal.

Shares rose about 1.5 per cent to $212.84 in premarket trading, adding to their nearly 25 per cent gains this year.