By Manya Saini and Nupur Anand
Oct 13 (Reuters) – JPMorgan Chase fell short of quarterly profit estimates for the first time in nearly three years as market volatility and an uncertain economic outlook dampened dealmaking and reduced bond market trading activity in recent months.
Earnings from the largest US bank underscored how uncertainty over interest rates, soaring energy prices and geopolitical tensions shaped the quarter. While equities trading thrived, dealmakers largely stayed on the sidelines, threatening what was expected to be a banner year for investment banking.
The deals desk, in particular, had to contend with a sharp loss in momentum in the IPO market after a cracking start to the year, highlighted by the historic listing of Elon Musk’s SpaceX.
JPMorgan reported an 8% decline in third-quarter investment banking fees versus the second quarter, even as it recorded a 14% rise compared with a year earlier.
Revenue in its markets division climbed 15% in the third quarter from the prior year. Equity markets surged 49% as investors rejigged their portfolios amid the volatility. Fixed-income trading revenue, however, declined 4%.
“JPMorgan may be a victim of its own success … as it creates a high bar to clear in Q3 and clearly it had some difficulty doing just that,” said Brian Mulberry, chief market strategist at Zacks Investment Management, which holds shares of the bank.
“It is a warning that higher-for-longer interest rates could have an impact on dealmaking fee revenues in the near term.”
Investment banking and trading revenues came in at the lower end of the bank’s own estimates too. In September, JPMorgan Co-President Doug Petno said investment banking fees and markets revenue were expected to be up in the “mid-to-high teens” percentage in the third quarter.
The bank reported a profit of $5.57 per share for the three months ended September 30. Analysts on average had expected $5.85 per share, according to estimates compiled by LSEG. It was the banking giant’s first profit miss since the fourth quarter of 2023, according to LSEG data.
The bank’s shares were up 0.9% in volatile early trading.
IPO MARKET LOSES STEAM
Analysts have said the IPO market has been selective, not shut, and delayed offerings could still launch if conditions stabilize during the fourth quarter.
Banks earn lucrative fees from underwriting the initial offering, as well as from subsequent follow-on sales as companies issue more shares.
“Investment banking fees each rose at a mid-teens rate, helped by strong levels of client activity, although activity did moderate somewhat during the quarter,” CEO Jamie Dimon said in a statement.
On a call with reporters, JPMorgan Chief Financial Officer Jeremy Barnum said the investment banking pipeline remained very strong, despite a slowdown in the second half of September.
He said it was too early to say with certainty, but he expects deals to be delayed rather than cancelled.
CONSUMER BANKING BOOST
The US economy has so far defied expectations as the labor market has held up and consumer spending remains healthy, keeping the industry’s crucial lending business churning.
Net interest income, excluding markets – the difference between what a bank earns off loans and pays out on deposits – increased 6% in the quarter to $24.7 billion. Average loans rose 10% year-over-year.
“The US economy continued to be fueled by strong business investment and ongoing consumer spending,” Dimon said.
JPMorgan raised its interest income forecasts for the year to roughly $106.2 billion, market dependent, and $97.2 billion, excluding markets. It had previously guided to $105.5 billion and $96.5 billion, respectively.
Mulberry said the raised NII target is also pushing overall earnings per share growth expectations higher.
For 2027, the bank forecast net interest income, excluding markets, of about $107 billion on a preliminary basis.
Loan growth has come into sharper focus after the Federal Reserve hiked interest rates for the first time since 2023 in September, with hawkish signals of more possible tightening ahead.
That, combined with a spike in bond yields, has the potential to push borrowers out of the credit market as they navigate higher borrowing costs and tighter financial conditions.
JPMorgan also hiked its annual adjusted expenses forecast to about $108.6 billion from $107.5 billion. Barnum said expense growth at the bank reflected revenue growth that had exceeded expectations.
Rivals Goldman Sachs, Citigroup and Wells Fargo beat Wall Street expectations for quarterly profit on Thursday.
(Reporting by Manya Saini in Bengaluru and Nupur Anand in New York; Editing by Saumyadeb Chakrabarty)
Comments