3 takeaways from the JPMorgan Chase earnings report

JPMorgan Chase (NYSE: JPM), the largest US bank by assets, kicked off another widely anticipated earnings season, as investors and analysts were interested to see how banks and the economy fared in the third quarter. The delta variant of the coronavirus has caused parts of the country to be extra cautious, with cases and hospitalizations on the rise. However, the economy also continued to recover as people adjusted to life with COVID-19 and vaccines likely mitigated its impact.

Here are three big takeaways from JPMorgan’s third quarter earnings report.

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1. More patience needed on loan growth

Investors weren’t expecting anything special when it came to loan growth, and they weren’t surprised. Average loan balances at JPMorgan increased 2% from the second quarter and remained stable at period end.

But the good news is that the bank noted that debit and credit spending was up 26% from 2019 levels, and management believes credit card repayment rates have stabilized. CFO Jeremy Barnum said there were signs that the growth in credit card loans would eventually accelerate, such as high levels of consumer spending, but the question remains whether that spending translates into growth in card loans. Third quarter credit card loan balances increased 1% from the end of the second quarter and 4% from the second quarter in terms of average card balances. Barnum said data within the bank shows that customers who typically contribute to the growth of credit card loans are starting to spend the savings accumulated from the pandemic at a faster rate, suggesting they may be moving closer to go into debt again.

On the commercial side, there was even less activity on the lending front, which has been the norm throughout the year. Commercial bank loan balances remained stable at the end of the period and declined on average in the third quarter. Outstanding loans decreased in the intermediary bank and increased very slightly in loans to businesses and commercial real estate. Barnum said the continued struggle in the growth of commercial and industrial loans is linked to supply chain issues, although small lending firms that lack access to capital markets have been a bit more active. Barnum called commercial real estate pipelines “strong,” but gave no indication of loan growth for 2022.

2. Credit quality has improved

After announcing excellent credit quality in the first half of the year, JPMorgan recorded even better credit quality in the third quarter. The bank’s net write-off rate of total loans – which is debt unlikely to be collected, a good indicator of actual loan losses – fell to just 0.21%, which Barnum called more low that the bank has seen in recent history. With continued strong credit, the bank poured $ 2.1 billion of capital previously set aside for loan losses back into profits.

In addition, JPMorgan’s total reserves for loan losses are still $ 2 billion higher than they were on January 1, 2020, before the pandemic. There could still be more exits, in large part due to the continued strength of the credit card portfolio.

The bank’s credit card portfolio net write-offs fell from 2.24% in the second quarter to 1.39% at the end of the third quarter, which is very low. Management estimated the net write-off rate for the full year 2021 to be around 2%, and JPMorgan has set aside enough reserves to cover losses equivalent to more than 8% of its loan portfolio. on credit cards.

3. Corporate and investment banking remains strong

The corporate and investment banking (CIB) division served as a buoy for JPMorgan during the pandemic, generating enough income to fund all the loan loss provisions the bank had to set aside to prepare for possible loan losses. And despite some standardization, the division continued to generate very good results. CIB in the third quarter generated net income of nearly $ 5.6 billion on total revenue of nearly $ 12.4 billion. Investment banking revenue of over $ 3 billion in the quarter grew 45% year-over-year, while the division also performed well in the equity and services markets. securities.

Strong investment banking fees were driven by the huge increase in M&A activity in the third quarter and JPMorgan maintained its # 1 ranking in global investment banking fees with a portfolio share of 9, 4% since the start of the year. Year over year, Barnum said JPMorgan nearly tripled fees in a year the market had only doubled. Barnum added that the overall M&A pipeline is healthy and fourth quarter investment banking fees are expected to be up year over year, but down from the third quarter.

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