JPMorgan Earnings Feast on Higher Interest Rates, Lower Taxes

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JPMorgan Chase & Co. (NYSE: JPM) reported fiscal third-quarter 2018 results before markets opened Friday. The investment bank and financial services giant reported diluted earnings per share (EPS) of $2.34 on managed (adjusted) revenue of $27.8 billion. In the same period a year ago, the big bank reported EPS of $1.76 on managed revenue of $26.45 billion. Third-quarter results also compare to the consensus estimates for EPS of $2.25 on revenue of $27.5 billion.

Quarterly profits rose by 24%, from $6.73 billion in the third quarter of 2017 to $8.38 billion. Net interest income totaled $14.1 billion, up 7%, driven by the impact of higher rates along with loan and deposit growth. The bank’s income tax expense fell by $515 million, a decrease of 18%.

Higher interest income combined with a lower tax expense accounted for $1.46 billion (nearly 90%) of the bank’s year-over-year profit growth of $1.65 billion.

Noninterest revenue reached $13.76 billion, up 3% year over year but down 7% sequentially. The bank attributed the year-over-year increase to higher markets revenue and auto lease income. The increase was partially offset by markdowns on certain legacy private equity investments.

Provision for credit losses was $948 million, a drop of 22% year over year.

By divisions, net income in the consumer and community banking group rose by 20% to $4.09 billion. Commercial banking net income was flat at $1.09 billion, and asset management group net income fell 4% to $724 million for the quarter.

Corporate and investment banking group net income fell 18% to $2.63 billion, and revenues were down 11% to $8.81 billion. Fixed Income Markets revenue of $2.8 billion was down, reflecting “mild weakness” in rates, financing, credit trading and securitized products, due to compressed margins and tighter financing spreads in competitive markets.

Provision for credit losses in the group was a benefit of $42 million, compared to a benefit of $26 million in the prior-year quarter.

Bank CEO Jamie Dimon said:

The U.S. and the global economy continue to show strength, despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy.

In Consumer & Community Banking we attracted record net new money this quarter, driving client investment assets up 14%, and we saw continued double-digit growth in card sales and merchant processing volume. Our customer satisfaction across CCB is at or near all-time highs, and we continue to grow deposits faster than the industry, even as the pace slows with rising rates. In the Corporate & Investment Bank we maintained our leadership in Banking and Markets, including #1 in global IB Fees year-to-date. Mixed results in Fixed Income Markets were offset by strong performance in Equities. Commercial Banking delivered another strong quarter, and Asset & Wealth Management attracted positive flows across all asset classes

The bank did not offer guidance in its press release, but the consensus estimates call for fourth-quarter EPS of $2.24 on revenues of $27.37 billion. The EPS estimate for the 2018 fiscal year is $9.18, on $111.16 billion in revenues.

Shares traded up about 1.3% in Friday’s premarket session at $109.55. The current 52-week range is $94.96 to $119.33. The consensus 12-month price target was $121.94 before results were announced.

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