Last Friday, you could almost hear a collective sigh of relief from the stock market and from economists after JPMorgan Chase(NYSE: JPM) published its third-quarter results. The company is the largest bank in this country, which is saying something given the massive size and the heft of our economy. So how it performs is often seen as something of a bellwether not only for the wider banking sector, but for American business generally.
Happily for people who view it that way, JPMorgan Chase's quarterly performance was very good. That, combined with the subsequent third-quarter earnings beats delivered by fellow Big Four banks Wells Fargo, Bank of America, and Citigroup, only helped to boost confidence in the U.S. financial system. Let's put JPMorgan Chase's quarter under the microscope to discover what underpinned the leading lender's success.
Investment banking for the win
The quarter saw JPMorgan Chase amass more than $42.6 billion in revenue, for year-over-year improvement of 7%. That filtered down into net interest income (NII), which is the crucial metric measuring a bank's take on interest-bearing assets, of $23.5 billion. That was 3% higher than in the comparable period of 2023.
Going in the opposite direction, although not worryingly so, was GAAP net income. This dipped by 2% from the same quarter of last year to hit slightly under $13 billion, or $4.37 per share.
As for other important financial yardsticks, JPMorgan Chase's average loans and average deposits both climbed slightly upwards at 1% year over year.
Both headline figures were well above the consensus analyst estimates. On average, pundits tracking JPMorgan Chase were expecting less than $41.5 billion in revenue and $3.99 per share for GAAP profitability.
That's a solid pair of beats. How did a bank that barely expanded its deposit base or loan book manage to top expectations to that degree?
In a word -- OK, two words -- investment banking. JPMorgan Chase splits its business into four units; these days its commercial and investment bank (CIB) operation is nearly the equal of its bedrock consumer and community banking (CCB) unit in terms of revenue contribution (both pulled in more than $17 billion for the quarter).
CIB's take rose by 8% to cross that $17 billion barrier, which can be chalked up to the company being a powerhouse in a range of investment banking segments. That's a fine position to be in these days, as capital markets of all kinds remain frothy, and there's still plenty of hunger for up-and-coming businesses to list on the stock exchange.
King of the hill
Of course, any bank stock investor always has his or her eye on those deposit and loan figures. JPMorgan Chase didn't move the needle much on either during the quarter, but if I were a shareholder I wouldn't lose a lot of sleep over this. Firstly, the lender is such a mighty presence in other corners of banking and finance. It's not only a top investment banker, but also the No. 1 credit card issuer in the U.S., according to several different metrics.
Besides, we haven't yet felt the full effects of the Federal Reserve's (Fed) recent 50 basis point rate cut. Fed trimmings can fall either way for banks, as cooling rates can eat into profitability, but boost demand for loan products. Yet if any bank can find a way to push its fundamentals higher in the new environment, it's this big and powerful one.
So to sum, JPMorgan Chase's third-quarter earnings continue to support the buy case for the stock. The company should continue to keep humming along, barring no sudden economic catastrophe, and its stock remains a top pick atop the heap of large American banks.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.
