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JPMorgan beats earnings estimates in the 3rd quarter

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Yahoo Finance's Brian Sozzi, Julie Hyman, and Brian Cheung break down the third quarter earnings results from JPMorgan.

Video Transcript

JULIE HYMAN: And that has to do with JP Morgan earnings, that company coming out and beating estimates. The real standout here-- investment banking fees, which also came in ahead of estimates. Brian, what stands out to you?

BRIAN CHEUNG: Yeah, well, earnings season is here. So quarter three in the books for JPMorgan Chase, the United States' largest bank, as we just flashed the numbers ahead of you. A $30.4 billion in revenue on the top line-- that beat the Street's estimates of $29.9 billion. On the bottom line, they handily beat the Street's estimates, clocking in at $0.74 per share compared to the Street's estimates of $2.97.

Now a lot of this was because of the credit reserve releases. We know that this is going to be a broad theme for the other banks that are expected to report through the remainder of this week. Obviously, these are reserves that the banks have set aside because they were worried about a lot of defaults on personal and consumer business loans during the depths of the pandemic.

Wasn't as bad as the banks expected. So over the past few quarters, they've been steadily letting some of those reserves and credit loss reserves aside to fall off of the net income side of their sheet. Now in this particular quarter, JPMorgan Chase was able to release about $2.1 billion, but the story for JPMorgan Chase largely remains leaning on its investment banking and asset wealth management side of things.

When you take a look at non-interest revenue, this is a key stat for JP Morgan Chase-- up by 3% in the quarter. That's a lot because of banking fees, investment management fees. Consider this also-- M&A and IPOs were particularly hot, the release noting that.

And then commercial banking actually had a record quarter-- $1.3 billion in gross revenue. All of these things have been subsidizing really what's been tepid growth in their bread and butter businesses. That's credit card, business lines of credit.

Consider that the consumer and community bank average loans were actually down by 2%. This is despite the fact that Jamie [? Dimon, ?] the CEO, had said last quarter, he was hoping that the pump would be primed for the consumer to come back strong soon. And we're not seeing necessarily in this quarter, but it's worth noting that CFO Jeremy Barnum saying on an earnings call just about a few minutes ago that, quote, "we see some signs of life, and we believe that recovery is strongly underway." Whether or not we start to see that more underlying fundamental growth in, say, the credit card business remains to be seen. We'll see if the fourth quarter earnings in January will kind of tell where that direction is going.

BRIAN SOZZI: Brian, what caught my attention among many things in this report is equity markets revenue up 30% year over year. And we saw certainly that pickup in volatility late in the quarter. But really, it continues that theme, just this generally strong interest by people to be invested in the stock market. And really, that has been happening all year long.

BRIAN CHEUNG: Yeah, and when you see, you know, 30%, for example, year over year increase, you do have to be careful because these year over year comparisons are comparing, in some cases, some of the depths of the pandemic last year. Now if you look at quarter four, where you start to see some of the rebound, [? that might ?] be a little bit more emblematic of a true underlying growth rate.

But again, it is indeed the case that equities and their trading desk were really a big bright point for these investment banks. Now I do want to note that this inflection point is starting to happen not just at JPMorgan Chase but the other major banks as well where during the pandemic, it was the volatility and the counter cyclicality of their ability to trade in equity and specifically fixed income markets to be able to meet their profit margins for those quarters because of the fact that consumer loans and business loans were obviously in the gutter with everyone sheltered down during the depths of the pandemic last year. Now it's starting to shift where with the reopening of the economy, all of this demand coming back, the inflation numbers are a big validation of this point, that maybe that's going to start to shift-- that reduced volatility in equity markets.

Again, volatility is still definitely high right now but certainly not compared to, say, the summer of 2020 and the spring of 2020-- whether or not that's going to kind of shift the balance here where, you know, loan growth in those credit card loans and those small business loans will be the bigger driver of growth in revenue compared to, say, equity underwriting, M&A, IPO, advisory type of things. Now of course, for the more money centered banks like Goldman Sachs, Morgan Stanley-- JPMorgan Chase falls into that. That will likely still remain a story.

But when you take a look at Wells Fargo, Bank of America, Citigroup, those are banks that are going to be reporting tomorrow. It will be very interesting to see if that inflection point comes in quarter four. JPMorgan Chase's earnings today suggest it hasn't happened this quarter yet. But again, we'll have to see what the trajectory looks like in the next two quarters to come.

JULIE HYMAN: Yeah, and as you said, that's something that Jamie [? Dimon ?] has really been waiting for-- that inflection, the pickup, once again, in that loan growth. Thanks so much, Brian Cheung. One more note that I wanted to say about JPMorgan as we see the shares down right now, Brian, is that they've been doing very well, and everybody we talked to likes banks seemingly going into these earnings. So we have seen high expectations. The stock, by the way closed at a record $170.22. just on October 8.