JPMorgan Earnings Expected to Benefit from Higher Interest Rates

JPMorgan Chase $JPM, America’s largest bank kick off the banking sector’s third quarter earnings season on Friday before the market opens.  With the equity and bond markets continuing to slide investment-banking fees are expected to be down sharply again, much like competitor Morgan Stanley had also reported as capital markets seized up. However, JPM is expected to add net interest income with the bank seen to have been more disciplined than others on deploying cash, and now has the opportunity to extend duration at higher rates.

john pierpont morgan
JP Morgan

Last quarter JPM added to the $900 million set aside for potential future losses last quarter with another $428 million. The bank also temporarily suspended share buybacks.

BlackRock (NYSE: BLK) report Thursday. First Republic Bank (FRC), Coastal Financial (CCB), JP Morgan (JPM), US Bancorp (USB), PNC Financial Services (PNC), Morgan Stanley, Wells Fargo (NYSE: WFC), Citigroup (NYSE:C), Goldman Sachs Group Inc., and Bank of America Corp will all report Friday through Monday.

JPM Earnings Preview

Q3 2022 earnings release at 7 a.m. ET; conference call at 8:30 a.m. ET

  • Projected EPS: $2.92. Has fallen 4 cents a share from $2.96 a share in July, but it remains above the estimate of $2.80 a share on March 31, according to FactSet data.
  • Projected revenue: $32.13 billion

Investment Banking Losses

JPMorgan President Daniel Pinto told investors last month that he expected the bank’s investment banking fees to fall between 45% and 50% in the third quarter.

Weakness has been exacerbated by a decline in large private-equity buyouts, dropping 54% to $716.62 billion in the third quarter from the same period last year, according to Dealogic data.

U.S. banks wrote down $1 billion in Q3 on leveraged and bridge loans as rising interest rates made it tougher for them to offload high-risk debt onto investors and other lenders. Wall Street banks took combined losses of $700 million on the sale of $8.55 billion in loans and bonds backing the leveraged buyout of business software company Citrix Systems Inc, Reuters reported last month, citing a person familiar with the matter.

The Twitter takeover by Elon Musk has been reported to lead to $500 million dollar losses for the financing banks if the deal goes ahead.

“We are expecting further losses on these deals,” said Richard Ramsden, an analyst at Goldman Sachs who oversees research on large banks. “It’s going to vary quite a bit,” depending on where the transactions were initially priced and how much exposure remains, he said.

JPMorgan Last Quarter Earnings

Analysts Outlook on Banks

Oppenheimer issued a note generally positive on bank stocks due to cheap valuation. The firm noted that in in two of the last three recessions, bank stocks bottomed relative to the market either at the beginning or well before the recession began. Oppenheimer’s favorite names are Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), Jefferies (JEF), Morgan Stanley (MS), and U.S. Bancorp (USB).

Citigroup predicts strong earnings beat and share price pop for JPMorgan Chase (JPM) off better-than-expected net interest income. The bank’s guidance for NII is expected to be revised higher as JPM is said to have been more disciplined than others on deploying cash, and now has the opportunity to extend duration at higher rates. The firm also upgraded Bank of New York Mellon (BNY) shares to a buy rating ahead of earnings because of the bank’s relatively lower exposure to loan losses and strong return outlook.

Morgan Stanley in a note warned that inflation plus QT is a recipe for volatility. “Throw in rapidly rising, higher for longer rates and higher capital requirements and you get an accelerating credit cycle” With defense seen as the best offense in the current backdrop, MS recommends leaning into M&T Bank (MTB), Regions Financial (RF), Wells Fargo (WFC), and First Republic Bank (FRC).

Higher rates increase margins

With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues are expected to rise from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.

The brighter outlook for bank profits coincides with higher Treasury yields. The benchmark 10-year Treasury yield has risen dramatically for the year-to-date, with higher interest rates boosting banks income from their core lending businesses.  

Rising rates have also had another big impact for Banks, and Central banks alike, the higher rates have seen huge losses on the bond paper they hold. When interest rates go up, bond prices go down, meaning there are significant unrealized losses at current prices. JPMorgan are seen taking a loss of almost $1 billion from selling Treasurys and mortgage-backed securities in the third quarter.

JP Morgan Q2 2022 Earnings Recap


Source: JPM, WFC, C, BLK,

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