ii view: JP Morgan Chase generates record revenue

JP Morgan Chase has reported forecast-beating results, defying lower interest rate concerns. 

Third-quarter results to the end of September 2019

• Net revenue up 8% to $30.1 billion
• Net income up 8% to $9.1 billion
• Earnings per share up 15% to $2.68

Chief executive Jamie Dimon said:

"JPMorgan Chase delivered record revenue this quarter, demonstrating broad-based strength and the resilience of our business model despite a more challenging interest rate backdrop. In Consumer & Community Banking, we had strong deposit and client investment asset growth. Our consumer lending businesses benefited from our continued investments and a favourable environment for borrowers, which helped drive healthy volumes in Home Lending and Auto and strong loan growth in Card."

ii round-up:

US banking giant JPMorgan Chase & Co (NYSE:JPM) reported both record revenues and forecast-beating earnings in these third-quarter results. 

Growth in home, car and credit card loans helped drive a 5% and 7% gain in profit and revenue respectively for its Consumer & Community Banking division. Its Corporate and Investment Banking division posted gains of 7% and 6% respectively, aided by client activity in fixed income products and increased investment banking fees.   

The bank, which operates in over 100 markets globally, posted earnings per share of $2.68, up from $2.34 in the third quarter of 2018 and beating the analyst consensus estimate of $2.45 per share (source: Refinitiv). 

The share price gained over 1% in pre-market US stock trading. 

Less favourably, and despite an 8% gain in assets under management, profit for its Asset and Wealth Management division fell by 8%, impacted by pressure on client cash held, while similar pressures also hit its Commercial Banking division with profit falling by 14%. 

The bank continued to flag what it considers to be 'fortress' like balance sheet strengths. Accompanying management comments highlighted the current conflict between healthy US consumers and weakening business sentiment thanks to increasingly complex geopolitical risks, including global trade tensions. 

ii view:

JP Morgan is a highly diverse US banking giant. Its operations cover both traditional consumer and corporate banking along with investment banking and asset management. With North America generating around three-quarters of revenue, the bank is seen as offering a broader health check on the wider US economy. 

These third-quarter results suggest that the bank is navigating current mixed US economic forces well. Despite concerns for the impact of lower interest rates on profitability, both its core Consumer Banking and Corporate and Investment Banking divisions have made progress, while the experience of long-serving chief executive Jamie Dimon offers reassurance.  

For investors, the strength of the US economy going forward remains central. A move into negative interest rates, as seen in Europe, would raise major concerns about its impact on the banking sector. But a prospective dividend yield of nearly 3% and a forward price/earnings ratio below the three and 10-year averages, potentially offer attraction.  

Positives: 

• Business diversity
• Highly regarded chief executive
• Passed the Federal Reserve's most recent stress test

Negatives:

• Heavy exposure to the US economy
• Lower interest rates broadly bad for bank profitability
• Profit at both Wealth and Commercial Banking divisions fell

The average rating of stock market analysts:

Buy