Earnings Reports

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JPMorgan Chase, America's largest bank by assets reported better than expected third quarter earnings Wednesday before the open. $JPM gained from a release of $2.1 billion in reserves and $524 million of chargeoffs. Goldman Sachs  Bank of America, Citigroup, BlackrockMorgan Stanley, PNC and Wells Fargo report later in the week.

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 JPMorgan Chase & Co NYSE: JPM · Reported Earnings Before Open Wednesday

 $3.74 Beat $3.01 EPS Forecast AND $30.44 Beat $29.80 Billion Forecast in Revenue

Earnings

  • Q3 2021 earnings release: before the opening bell; conference call: 8:30 a.m.

JPM third-quarter profit of $3.74 per share on revenue of $30.44 billion beat projected of EPS of $3.01 on projected revenue of $29.8 billion. Last quarter JPM's earnings per share was $3.78 on revenue of $30.5 billion which exceeded analysts’ expectations of $3.18 EPS and $19.75 in Revenue.

The gain included $2.1 billion in reserves and $524 million of chargeoffs in the quarter, 52 cent per share boost from reserve releases and a 19 cent per share benefit tied to the tax filing.

JPMorgan Chase $JPM, America's largest bank kicked off the banking sector's Q3 21 earnings season on  Wednesday before the market opens with expectations for strong earnings. The Federal Reserve earlier in the year allowed the resumption of buybacks and dividends. Expectations are high that the economic reopening of the US economy could release more cash from reserves in the form of extra dividends.

JPMorgan's near-term outlook focus is on the cadence of expected credit losses and whether the tapering stimulus will reduce (or just delay) cumulative credit losses, capital management, M&A and share buybacks at JPM’s current valuation.  The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto.

JPMorgan Chase & Co. (JPM) NYSE - Pre-Market: $166.37 +1.01 (+0.61%)

Highlights

The bank “delivered strong results as the economy continues to show good growth - despite the dampening effect of the Delta variant and supply chain disruptions,” CEO Jamie Dimon said in the statement. “We released credit reserves of $2.1 billion as the economic outlook continues to improve and our scenarios have improved accordingly.”

  • Companywide revenue rose 2% to $30.4 billion, mostly driven by booming fees in the firm’s investment banking and asset and wealth management divisions.
  • Net interest income of $13.2 billion v $12.98 billion estimate on higher rates and balance sheet growth.
  • Fixed income revenue dropped 20% to $3.67 billion, below $3.73 billion estimate. 
  • Equities trading revenue  $2.6 billion, beating $2.16 billion estimate.
  • Robust levels of mergers and IPO issuance in the quarter helped the firm’s investment bank.
  • The company posted a 50% increase in investment banking fees to $3.28 billion, beating estimate by half a billion dollars.
  • Last month, JPMorgan executive Marianne Lake said that trading revenue will be 10% lower than a year ago, which was an unusually strong quarter.
  • The firm’s asset and wealth management division posted a 21% increase in revenue to $4.3 billion on higher management fees and growth in balances.
  • Assets under management rose 17% to $3 trillion on rising equity markets.

JPM Q3 2021 earnings.jpg

Capital ratios

Banks are subject to many different capital requirements and ratios. Most banks are bound by the common equity tier 1 (CET1) capital ratio, which is a measure of a bank's core capital expressed as a percentage of its risk-weighted assets such as loans.

However during the pandemic, deposits flooded into the banking system, ballooning lots of bank balance sheets including JPMorgan's. As a result, the bank started to run up against another regulatory capital constraint called the supplementary leverage ratio (SLR), which is a measure of a bank's tier 1 capital expressed as a percentage of total assets and off balance sheet items.

Large banks must maintain an SLR of at least 5%. During the pandemic, the Federal Reserve applied an exclusion so banks didn't have to worry as much about the SLR, but that exclusion expired earlier this year. Now, the SLR is JPMorgan's binding regulatory capital ratio, and JPMorgan ended the quarter at 5.4%, not leaving a large cushion. JPMorgan's balance sheet grew because of the influx of deposits, but loans actually declined while those deposits were coming in, so while the bank got bigger, it didn't really get any riskier.

JPMorgan will have to closely manage the SLR by either turning away deposits from corporate customers, or raising capital through preferred and common stock raises. Near term it will likely lead to JPMorgan holding more capital than it would like to, or need to, if the CET1 ratio was the binding regulatory constraint.

 

Source: JPM, AlphaStreet

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