JPMorgan Says Trading Pain Isn't Over After Third-Quarter Slump

Breaking Down JPMorgan's Earnings Disappointment
  • Lake: Analyst estimates for trading this quarter `appear high'
  • Her comments are a `bad omen' for other banks, analyst says

JPMorgan Chase & Co., the first big U.S. bank to report earnings after the third-quarter’s market tumult, missed analysts’ estimates and cautioned that trading is off to a tepid start this quarter.

The nation’s largest lender said revenue fell 6.4 percent in the three months ended Sept. 30, driven by a slump in trading and mortgage-banking results. Adjusted earnings per share were $1.32, missing the $1.38 average estimate of 29 analysts surveyed by Bloomberg. Revenue from fixed-income trading tumbled 11 percent, excluding the impact of selling businesses.

“So far in October, across asset classes, the markets are pretty quiet,” Chief Financial Officer Marianne Lake said on a conference call after JPMorgan released results Tuesday. “We’re only two weeks into the quarter, and it’s too early to give specific guidance, but based on those facts alone, analysts’ estimates appear high” for the rest of the year, she said.

‘Bad Omen’

JPMorgan’s earnings show Wall Street firms are still under pressure to cut expenses -- potentially including annual bonuses -- as volatile markets and the continuation of record-low U.S. interest rates hurt profit. Though the firm shrank noninterest costs 2.7 percent to $15.4 billion in the third quarter, that still wasn’t enough keep up with its revenue drop.

Lake’s comments are “a bad omen for the other banks,” said Pri de Silva, a senior banking analyst at CreditSights Inc. in New York. They show that the global market rout and uncertainty around interest rates and economic growth are still prompting investors to curb bets. “The disclaimer is that there’s two and a half more months to go, but if the current trend continues, activity levels are going to be lower than what’s baked into analyst models,” he said.

JPMorgan shares fell 1.7 percent to $60.50 in late trading in New York.

Cutting Jobs

Net income rose 22 percent to $6.8 billion in the third quarter, helped by tax credits that stemmed from the financial crisis. The firm doesn’t expect similar credits of that magnitude in the future, Lake said. The bank has cut about 10,000 jobs in its workforce this year, she said, without indicating whether more may follow.

“We continue to focus on our commitments, optimize our balance sheet and manage our expenses,” Chief Executive Officer Jamie Dimon, 59, said in a statement.

Earnings at the corporate and investment bank, run by Daniel Pinto, dropped 13 percent to $1.46 billion, as revenue fell 10 percent from a year earlier to $8.17 billion. Fixed-income trading tumbled 23 percent to $2.93 billion including the impact of business sales. The unit’s compensation costs, which typically amount to about 30 percent of revenue, fell 3.8 percent in the year’s first nine months, roughly tracking the division’s decline in revenue.

‘Tougher’ Quarter

“It was tougher to make money, in particular in credit and commodities, where clients were much less active,” Lake said. Bright spots included equity trading, which boosted revenue 9 percent to $1.4 billion, and investment banking, where it rose 5 percent to $1.5 billion on higher advisory and debt underwriting fees.

Net income from consumer and community banking, run by Gordon Smith, rose 4 percent to $2.63 billion. Still, revenue from mortgage fees and related income slumped 48 percent to $469 million.

Bank stocks during the period had their worst performance since 2011 as expectations for when the Federal Reserve will raise its benchmark rate shifted to next year, which would leave the industry’s margins under pressure even longer. The Fed left rates unchanged in September on concern China’s slowing growth would drag down other economies. The 24-company KBW Bank Index tumbled 9.5 percent in the third quarter, worse than the 6.9 percent drop for the broader S&P 500 Index.

Bank of America Corp., the second-biggest U.S. bank by assets, and Wells Fargo & Co., the top U.S. mortgage lender, are scheduled to report results Wednesday. No. 3 Citigroup Inc. is scheduled to release results Thursday.

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