J.P. Morgan Smashes Earnings Expectations in Strong Start of Q3 Earnings Season

on Oct 14, 2020
Updated: Dec 19, 2022

The earnings season for the third quarter started with the financial sector reporting first. J.P. Morgan, one of the largest investment banks in the world, reported smashing results, taking the market participants by surprise. 

COVID-19’s impact, naturally mattered for the market. The focus on these earnings was on the credit-loss provisions taken by the bank due to the pandemic. To the surprise of many, J.P. Morgan reported much lower provisions, only $0.61 billion and the market expected a number much bigger than $2 billion.

However this was not the only positive news from the bank. EPS increased dramatically as well, just like the revenue from trading.

Q3 J.P. Morgan Earnings Analysis

The company reported a $2.92 EPS on expectations of $2.35. Besides the strong EPS, the company reported  an impressive jump in trading revenues, up 30% Y/Y to $6.6 billion. Most of this performance came from trading fixed income markets (up 29%) and equity markets (up 32%).

The bank sees some difficulty in the core business moving forward – net interest income is down over 9% YoY. However, this comes as no surprise given the low-interest environment and the company compensated for it by stronger trading revenues. Coming back to the stronger trading revenues, the company offered a guidance of 20% increase, so the outcome was good news for J.P. Morgan investors.

On top of that, J.P. Morgan strengthened its future outlook, with further improvements in liquidity and capital as shown by CET1 capital.

However, the strong report was not enough to send the stock price higher. After a positive initial reaction, the stock is seen today $100.95, down 1.61% in line with the general negative trend seen in the stock market indices yesterday.

J.P. Morgan is a dividend-paying company with a dividend yield of 3.57% and a payout ratio of 48.69%. On top of that, it shows a five-year growth rate of 16.17% in the last seven years.

The financial sector in the United States, and most notably in Europe, has suffered from the low interest rates environment (even negative in the Eurozone). Because of that, the comeback of the financial sector with strong performance and resilience in front of the COVID-19 pandemic is good news for the overall stock market. Once again, J.P. Morgan sets high standards for the investment banking industry, with European competition having a difficult time to match its performance.