JPMorgan waits for animal spirits to jump species

3 minute read

Chase ATM machines are seen in New York City, March 17, 2020. REUTERS/Jeenah Moon

NEW YORK, Oct 13 (Reuters Breakingviews) - As the only U.S. bank with a branch in every state except Hawaii and Alaska, JPMorgan (JPM.N) is a good window into America’s financial habits. Third-quarter earnings show a country split into two kinds of people: those taking risks with money that belongs to others, and those being cautious with their own.

The bank run by Jamie Dimon grew earnings applicable to common shareholders to $11.3 billion in the third quarter, up 25% year-on-year and better than analysts polled by Refinitiv expected. More than half of the increase came from the corporate and investment bank, which helps chief executives launch initial public offerings and mergers. Advisory fees of $1.2 billion were the highest on record.

Customers who take risk on their own behalf remain more reticent. Credit-card users, who account for $1 of every $7 JPMorgan extends, are spending more but keeping a lid on outstanding balances. Interest income and fees amounted to less than 10% of total loans, the lowest in at least five years. That’s due to a trifecta of low interest rates, disciplined households, and the bank’s jumbo spending on marketing and rewards to lure punters further into debt.

Debt-averse customers are good in that they’re less likely to default. Dimon now expects to write off just 2% of plastic-related debt this year, down from the 2.5% he foresaw three months ago. JPMorgan’s earnings also benefited from reversing $2.1 billion of precautionary debt charges across the business. On balance, though, a lack of new borrowing is a drag. Dimon expects the bank’s net interest income, still around 10% lower than two years ago, will barely grow until 2022.

Meanwhile, JPMorgan is keeping its powder dry for when animal spirits return. The bank has excess capital in spades, and around $500 billion more cash deposited at other lenders than at the end of 2020. Its $500 billion market capitalization is almost twice its book value, the highest ratio in nearly 20 years. That suggests investors think interest rates will rise, companies will borrow more and consumers will get back to spending beyond their means, sooner rather than later.

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- JPMorgan on Oct. 13 reported third-quarter revenue on a managed basis of $30.4 billion, a 2% increase on the same period a year earlier, and slightly above analyst estimates of $29.8 billion, according to Refinitiv.

- The U.S. lender made $11.2 billion of earnings applicable to common shareholders, boosted by a $2.1 billion reversal of previous provisions that cover bad debts.

- Average loans through the quarter rose 5% year-on-year, whereas in the second quarter loans had been flat. Chief Executive Jamie Dimon said the bank saw “early signs” of loan growth in commercial real estate.

- Dimon also said that the recent pattern of consumers paying off their credit-card balances had “stabilized.” Average balances increased by 1%, year-on-year, having shrunk 4% in the second quarter.

- JPMorgan’s measure of “managed” revenue strips out the effect of tax perks that come with certain kinds of activities, to make them comparable with taxable securities and investment.

Editing by Peter Thal Larsen and Amanda Gomez

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