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JPMorgan posts Q3 earnings beat; warns more stimulus needed for COVID-hit economy

·Former Correspondent
·4 min read
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JPMorgan Chase (JPM), the largest U.S. bank by assets, kicked off the third-quarter earnings season for big banks on Tuesday by delivering stronger-than-expected results as the coronavirus outbreak continues to roil the global economy.

Here were the key figures versus expectations for the third quarter, according to analysts polled by Bloomberg.

  • Revenue (adjusted): $29.94 billion vs. $28.39 billion expected

  • Earnings per share (adjusted): $2.92 vs. $2.26 per share expected

Despite a COVID-19 crisis that’s still walloping the economy, the bank set aside $611 million in credit reserves for the quarter — much less than analysts expected and down $903 million from this same quarter a year ago. The firm had set aside $15.7 billion in the first half of 2020, and the lower Q3 figure underscores how consumers have defied the worst predictions associated with the crisis — even as the labor market remains scarred by mass layoffs.

JPMorgan earned $9.4 billion of net income on nearly $30 billion of revenue, and held credit reserves at $34 billion in the face of “significant economic uncertainty and a broad range of potential outcomes,” CEO Jamie Dimon noted.

On a call with reporters, CFO Jennifer Piepszak said the firm views “another round of stimulus as important” to relieve the pain and suffering felt by many. She added that the bank does not assume future stimulus in its current level of loan loss reserves, but another round would give the firm “more confidence” in its level of reserves.

“If there is a double-dip, there are a lot of things we would consider, and it is possible that we’d have to build our reserves beyond the base case today,” Piepszak said.

Dimon added that the people who need help the most with stimulus are the small businesses and the unemployed. The bank chief noted that “a good, well-designed stimulus package will increase the chance of better outcomes.”

“There’s so much uncertainty...We’re just saying that will increase the chance of good outcomes,” Dimon said — which could impact JPMorgan’s own bottom line and cash reserves.

“We don’t know the future. It’s all about probability and how we can reserve today,” Dimon explained. “We’d like to maximize the chance of good outcomes. We believe a decent stimulus package would be helpful.”

During the quarter, JPMorgan’s bottom line was bolstered by strength in corporate and investment banking. Markets and securities services revenue jumped 29% to $7.8 billion, with markets revenue up 30% at $6.6 billion compared to a year ago. Fixed-income trading revenues rose 29% to $4.6 billion, while equity trading surged 32% to $2 billion. Securities services revenue remained flat at $1 billion.

Banking revenue was up 6% at $3.7 billion, with investment banking revenue climbing 12% to $2.1 billion, driven by revenue from fees rising 9%.

Consumer and community banking’s revenue dropped 9% from a year ago to $12.9 billion. Net income for the consumer and community banking business also fell 9% to $3.9 billion.

Average deposits jumped 28%, while client investment assets rose 11%. Average loans fell 7%, and credit card sales volume declined 8%. Meanwhile, active mobile customers jumped by 10%.

Committed to new HQ building

During the media call, Piepszak also commented on the return to the office during the COVID-19 pandemic, and doing so in a safe way.

Approximately 20% of the staff has returned to the office in New York City and London. She noted that it is expected to continue for the “foreseeable future,” though they will continue to monitor the situation and “won’t hesitate to reverse course.”

As for the firm’s plans to build a new headquarters on Park Avenue, those have not changed, according to Dimon. He noted that the building would accommodate “maybe 14,000 people.”

“I do expect New York headcount will probably come down over time. We’re building a headquarters for 50 years. It’s not a short-term decision,” he added.

He noted that there’s plenty of room to have fewer people in that building and still keep it.

“We have plenty of leeway on how we manage our real estate over time,” Dimon said, noting that he does think there will be some work from home, possibly permanently, rotationally, or partially for some, but it’s not clear at this time.

Elsewhere, in the financial supplement, the bank noted that the extended suspension of share buybacks would continue “at least through the end of 4Q20.”

Shares of JPMorgan were last trading rose more than 1.5% in the pre-market to trade at $104.

Julia La Roche is a Correspondent for Yahoo Finance. Follow her on Twitter.

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