JPMorgan Chase reported a 35% increase in profits for the third quarter, boosted by higher interest rates and lower-than-normal loan losses.
Net income climbed to $13.2 billion, from $9.7 billion a year earlier, beating analysts’ expectations of $11.9 billion.
The bank’s chief executive, Jamie Dimon, said the earnings were solid but acknowledged that the results were boosted by over-earning on net interest income and below-normal credit costs.
He said both of these factors will normalize over time.
The strong results come as the Federal Reserve raises interest rates to combat inflation. Higher interest rates allow banks to charge more for loans and earn more on investments.
Conflicts in Ukraine and Israel
According to a Financial Times report, in a warning about the conflicts in Ukraine and Israel, Dimon said this “may be the most dangerous time the world has seen in decades”.
Dimon’s views on world affairs are closely followed across Wall Street.
JPMorgan’s shares trimmed an early gain of more than 4% to close 1.5% higher in New York.
As with the previous quarter, much of the gain was driven by net interest income, which at $22.7 billion was 30% higher than the same quarter a year ago.
The figure was ahead of analysts’ expectations of $22.4 billion, as JPMorgan continued to gain from the Federal Reserve’s cycle of interest rate rises and the bank’s emergency acquisition of First Republic.
Interest income
JPMorgan raised its net interest income target for 2023, excluding its trading division, from about $87 billion to about $89 billion.
Net interest income is the difference between what banks pay on deposits and what they earn from loans and other assets.
Big banks such as JPMorgan have been able to charge more for loans over the past 18 months without offering savers significantly higher rates for deposits.
In a further boost to profits, JPMorgan released $113 million in reserves it had previously set aside for potential losses, confounding analysts’ estimates for the bank to add roughly another $850 million to its reserves.
Loan losses
The report noted that JPMorgan continued to benefit from relatively low losses on its loans in the quarter.
Net charge-offs portion of loans with losses that are marked as unrecoverable — totalled $1.5 billion, more than double the same quarter a year ago but only up 6% from the second quarter.
On an annualized basis, JPMorgan wrote off 47% for every $100 it had loaned out, net of any recoveries it made.
Loan losses have been at historically low levels since the early months of the COVID-19 pandemic thanks to government stimulus programs. But although the Fed’s run of interest rate increases has boosted JPMorgan’s profits from making loans, there are worries that higher interest rates will pile pressure on borrowers.
Outlook: JPMorgan cut its outlook for the net charge-off rate at its card services business from 2.6% to about 2.5%.
It also trimmed its guidance for full-year expenses from roughly $84.5 billion to about $84 billion.
JPMorgan reported investment banking fees of $1.7 billion, down 3% from a year earlier but beating analysts’ estimates of $1.6 billion.
