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Higher Interest Rates Boost JPMorgan’s Q3 Earnings: Stock Rises

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Oct. 12 2018, Published 9:31 a.m. ET

JPM beats estimates

JPMorgan Chase (JPM) stock was ~1.5% higher in pre-market trading today after this largest bank in the United States kicked off its third-quarter earnings on a strong note. It reported overwhelming third-quarter results with its top and bottom lines not only surpassing Wall Street estimates but also marking YoY (year-over-year) improvement.

It beat the EPS estimate of $2.25 and posted EPS of $2.34, up ~33% YoY and 2.2% sequentially. Third-quarter revenues of $27.82 billion surpassed the estimate of $27.5 billion and marked a YoY improvement of 5.2%. However, sequentially, its revenues declined ~2%.

JPMorgan Chase benefited from loan book expansion, which resulted in net interest income growth of 7% and non-interest income growth of 3%. In line with the expectation, its revenues declined sequentially due to weaker trading revenues.

Its lending activity improved from the second quarter with 2% growth in core loans and 6% growth YoY. In comparison, deposits grew 4% as deployments increased for equities and instruments.

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Trading activity

Trading activities were mixed in the third quarter. Overall, trading income was $5.6 billion, up from $5.5 billion YoY but down from $6.5 billion sequentially. During the quarter, it saw a 10% fall in trading revenues from fixed-income assets, which was more than offset by strong trading activities in the emerging, commodities, and equity markets.

Equity market revenues grew 17% YoY, driven mainly by increased client activities. Services Securities revenues rose 5% YoY, primarily due to higher interest rates and operating deposit growth. Higher asset-based fees from new client activity also benefited its Services Securities revenue growth.

Retail growth

JPMorgan Chase’s Consumer & Community Banking segment posted net income growth of 60% and revenue growth of 10% YoY. The segment saw credit card sales volume growth of 12% and processing volume growth of 14%. Core retail banking revenues had 18% YoY growth due to rate spreads and retail loans.

The bank has been investing aggressively in technology for higher penetration and improving operating efficiency in trading, retail banking, and advisory services, which resulted in margin expansion. The bank managed a return on equity of 14% in the second quarter.

Other major banks (XLF) reporting third-quarter results today are Citigroup (C) and Wells Fargo (WFC). Wall Street’s earnings expectations for Citigroup and Wells Fargo are $1.69 and $1.17, respectively.

Bank of America (BAC), which will report its third-quarter results on October 15, is expected to report earnings of $0.62.

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