JPMorgan profit powered by record M&A fee, reserve release

The JPMorgan Chase & Co headquarters in New York City. JPMorgan reported higher third-quarter profits yesterday, as the improving economic outlook allowed it to include in earnings $2.1bn set aside earlier in the pandemic for potential loan defaults.

JPMorgan Chase & Co posted a bigger-than-expected 24% jump in quarterly profit on Wednesday as it released more loan loss reserves in signs of an improving economy, while a global dealmaking boom led to record fees from advising on mergers and acquisitions. The largest US bank, whose fortunes reflect the health of the economy, said robust M&A activity and a strong performance from underwriting initial public offerings (IPOs) offset a slowdown in trading in the third quarter. Fees from advising on deals almost tripled, while its asset and wealth management unit also registered strong growth. “JPMorgan Chase delivered strong results as the economy continues to show good growth — despite the dampening effect of the Delta variant and supply chain disruptions,” said JPMorgan Chief Executive Jamie Dimon. The bank released $2.1bn from its credit reserves during the quarter. Banks were forced to set aside billions last year for possible loan defaults during the pandemic. But a consumer-friendly monetary policy and stimulus checks buoyed spending for the average American consumer and increased their savings, allowing banks to release some of their reserve capital. JPMorgan’s net income rose to $11.7bn, or $3.74 per share, in the quarter ended September 30, compared with $9.4bn, or $2.92 per share, a year earlier. Analysts on average had expected earnings of $3.00 per share, according to Refinitiv. Wall Street banking has remained strong for most of the past year, as large, cash-flush financial sponsors and corporates embarked on a dealmaking spree, helping drive up investment banking fees at the largest Wall Street banks to record levels. Overall revenue rose 2% to $30.44bn in the quarter. Analysts on average were expecting revenue of $29.76bn. Net revenues in the bank’s asset and wealth management division were up 21%, boosted by higher management fees in the division that manages wealth for large institutions and individual investors. Investment banking revenue surged 45% to $3bn. Its consumer bank also reported a solid quarter as credit card spending rose and customers paid off loans at a slower pace, meaning the bank earned more interest income. “JPMorgan has kicked off reporting season, setting a clearly positive tone for what a bank that executes can deliver,” said Credit Suisse analyst Susan Katzke. The bank’s shares were up marginally in pre-market trading. Other large US banks including Bank of America, Citigroup, Wells Fargo and Morgan Stanley will report results on Thursday, while Goldman Sachs, Wall Street’s premier investment bank, will round out the earnings season on Friday. With global investment banking fees hitting an all-time record in the first half of the year, banks like JPMorgan have made the most of the dealmaking boom. The biggest US corporations have benefited from booming stock markets that have driven up their valuations and allowed them to use stock as acquisition currency, while they have also sought to raise debt and used large investment banks for advice on deals. During the quarter, JPMorgan maintained its position as the banking world’s second-biggest provider of worldwide M&A advisory after Goldman Sachs, according to Refinitiv. The league tables rank financial services firms by the amount of M&A fees they generate. High levels of fundraising, debt refinancings, convertible bond deals and stock sales also boosted investment banking. JPMorgan’s trading outfit, however, continued to see a slowdown in activity and did not hit the highs of the previous quarters that were boosted by unprecedented volatility in financial markets and a “meme stock”-fuelled trading frenzy. Overall, markets and securities services revenue fell 4% to $7.5bn, with fixed income trading slumping 20% to $3.7bn. However, equity markets revenue jumped 30%.