Picture: REUTERS
Picture: REUTERS

New York — JPMorgan Chase, in its third quarter under the shadow of the pandemic, showed that the surge in trading is holding up — and so are borrowers.

The biggest US bank posted a surprise increase in earnings, fuelled by a 30% jump in markets revenue as elevated volume kept its stock and bond traders busy. The lender also defied expectations by cutting its reserve for credit losses by $569m, after adding $20bn to the allowance in the first half, as charge-offs of bad loans declined from a year earlier.

Those improvements and a 9% gain in investment-banking fees led to the most profitable quarter of 2020.

“The corporate and investment bank continues to be a big driver of firm performance,” CEO Jamie Dimon said on Tuesday. “We maintained our credit reserves at $34bn given significant economic uncertainty and a broad range of potential outcomes.”

The Covid-19 pandemic has wreaked havoc on the global economy, and bank investors have been waiting to see how much that translates into losses from soured loans. Delinquencies have remained low so far, helped by lenders’ forbearance programmes and government stimulus efforts, but bank executives have warned that the effects could drag on for years.

JPMorgan’s earnings hint at what is to come when the rest of Wall Street reports results this week. The results indicate that the nation’s four biggest lenders probably won’t set aside the $10bn of additional loan-loss provisions that analysts had expected for the third quarter.

In releasing some of its credit reserves, JPMorgan is signalling more optimism about the outlook for the economy than it did just a few weeks ago. The bank lowered its year-end forecast for US unemployment to 9.5% from 10.9% in the second quarter, and expects the figure to fall to 7.3% by the end of 2021.

More than half the consumer loans that were in payment deferral at the end of the second quarter have exited those plans, with $29bn of balances remaining at end-September. About 92% of accounts that came out of deferral programmes are current on their payments, the bank said.

“If management does signal a more sanguine view on credit, with further reserve releases ahead, that would be a massive positive for the stock,” Vital Knowledge Media founder Adam Crisafulli wrote in a note.

Lowered estimate

Shares of the company rose 1.6% to $104.12 in early New York trading at 8.17am.

In another sign of optimism, JPMorgan lowered its estimate for the US economic contraction to 5.4% in the fourth quarter from a previous estimate of 6.2%.

CFO Jennifer Piepszak said in September the bank’s third-quarter trading revenue would probably jump 20% from last year. The firm surpassed that as its $6.6bn total was higher than the $6.15bn analysts were expecting.

Profit climbed 4% to $9.44bn from $9.1bn a year ago. The New York-based bank took a one-time charge to help cover the cost of a $920.2m fine to resolve US authorities’ claims of market manipulation by its precious metals and treasury markets trading desks. JPMorgan previously said it had set aside about half of what it needed for the fine.

Net revenue was flat from 2019 as a 7% increase in fee income was offset by lower lending income. The bank maintained its full-year outlook for net-interest income of $55bn, and said annual expenses would be about $66bn, in line with the outlook provided a month ago.

JPMorgan also extended a suspension on stock buybacks through at least the end of the year, citing the Federal Reserve’s unprecedented requirement that major US lenders halt repurchases for now.

Bloomberg

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