JPMorgan Chase (JPM) Q3 2020 earnings exceed estimates

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JPMorgan Chase on Tuesday released earnings that exceeded analysts’ estimates for sales and bottom line.

The lender’s stocks fell slightly after rising 1.5% in pre-trading hours.

The bank posted third-quarter earnings of $ 9.44 billion, or $ 2.92 per share, beating the consensus estimate of $ 2.23 per share by analysts surveyed by Refinitiv. The company had sales of $ 29.94 billion, about $ 1.5 billion more than analysts expected, driven in part by better-than-expected trading results.

The key question for the quarter: would American banks show they are largely done raising money on loan defaults related to the pandemic. That appears to be the case at JPMorgan, the largest U.S. bank by assets, which had a provision for borrowing costs of $ 611 million during the period, compared to $ 10.5 billion in the previous quarter.

Instead of building loan loss reserves as it aggressively did in the first half of the year, JPMorgan actually cut those by $ 569 million during the quarter, referring to a run-off of its mortgage portfolio. The bank had raised more than $ 15 billion in credit risk reserves in the first two quarters of 2020.

Most analysts had assumed that the bank would continue to increase its reserves. For example, Barclays analyst Jason Goldberg wrote last week that he expected the bank to build reserves of $ 857 million in the third quarter.

JPMorgan CEO Jamie Dimon noted that the bank’s total loan loss reserves were still rounded to $ 34 billion, roughly the same as the previous quarter. In the earnings announcement, he cited the need to hold reserves “in view of the considerable economic uncertainty and a wide range of possible outcomes” in connection with the coronavirus pandemic.

The fate of the industry is closely tied to the pandemic, as unemployment and business disruptions caused by the virus affect the ability of customers and companies to pay off debt.

CFO Jennifer Piepszak said during a phone call with reporters that the bank’s “base scenario” for the US economy had improved over the previous quarter. Instead of assuming that unemployment will average nearly 11% in the fourth quarter, the bank now expects a rate of 9.5%. The company also expected a smaller decline in GDP over the next three quarters than before.

Additionally, the profile of consumers using the bank’s mortgage, car loan, or credit card deferral programs improved quarter over quarter as deferred balances fell by half to $ 29,341.

“We would have to see how the economy delivers our baseline scenario in order to reduce some of this uncertainty,” said Piepszak. If so, the bank can continue to release reserves, she said.

Still, the bank faces an incredibly wide range of outcomes in the context of the coronavirus pandemic. Dimon said the company could be overreserved by a whopping $ 10 billion if the baseline or worst-case scenario develops (which they think is unlikely) it would be underreserved by $ 20 billion.

JPMorgan posted costs tied to the company’s records $ 920 million comparison Federal investigations to resolve its role in manipulating the global markets for metals and government bonds. The firm posted legal fees of $ 524 million for the quarter, reducing earnings by 17 cents per share.

Despite this reputational damage, trading is a ray of hope for banks that have benefited from rising volatility and unprecedented actions by the Federal Reserve to support credit markets. At JPMorgan, the bank’s commercial division was aiming for a 20% year-over-year increase in sales, Piepszak said at a conference last month.

Actual results exceeded that forecast, increasing 30% as fixed income trading had sales of $ 4.6 billion and stock trading sales of $ 2 billion, bringing estimates to total about $ 400 million -Dollars exceeded.

Investment banking revenues rose 12% to $ 2.1 billion due to higher stock and bond issuance fees.

JPMorgan stocks are down 27% until Monday this year, but banks could expect a rebound. The KBW Bank index is down 30% this year, the largest performance gap against the S&P 500 index in at least 80 years, as Barclays found last week.

JPMorgan, which along with the rest of the industry is banned from buying back shares until 2020, could buy back shares as early as the first quarter of 2021, the CFO said.

Dimon added that the bank was “very interested” in possible asset management mergers. Morgan Stanley had $ 20 billion in deals tied to the money management industry this year.

This is how the company did it:

Earnings: $ 2.92 per share versus $ 2.23 Refinitiv expects.

Revenue: $ 29.94 billion, up from $ 28.3 billion that Refinitiv expects.

Trading Revenue: Fixed Income $ 4.6 billion, Stocks $ 2 billion, vs. Fixed Income Expectations $ 4.53 billion, Stocks $ 1.67 billion.

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