What’s Going On Here?Never write off JPMorgan Chase: the investment bank defied a resurgent coronavirus to post third-quarter results that were much better than expected on Tuesday. What Does This Mean?Both JPMorgan’s revenue and profit came in higher than investors had predicted, with the bank seemingly firing on all cylinders. Its advisory business exceeded forecasts for fee income from helping other companies with things like mergers and fundraising. Its trading arm, meanwhile, benefited from clients’ busy buying and selling of stocks, bonds, commodities, and currencies, all at the expense of rivals. But where JPMorgan really cut loose was in its “provisions” – the amount of money it sets aside in case borrowers are unable to repay their loans. With the pandemic putting businesses and consumers under financial strain, that figure had been rising all year – but last quarter JPMorgan only stowed away $611 million, rather than the $2.3 billion analysts were expecting. Why Should I Care?The bigger picture: Personal finance fine, thanks.
Rival Citigroup’s own third-quarter earnings were just as strong on Tuesday, similarly beating investors’ forecasts for revenue and profit alike. Importantly, its provisions were also much lower than predicted, with the bank saying things had “stabilized”. That’s even more important for banks like Citi: credit cards tend to be one of the first things people stop repaying when they’re struggling for money, and Citi’s the world’s largest card provider. If Citi’s less worried about potential loan losses, it could indicate the economy’s looking up.
For markets: Sign language.
US stocks overall have risen about 10% this year – but US bank stocks have dropped some 30% on average (tweet this). While JPMorgan’s share price has fallen around 25% in 2020, Citigroup’s down over 40%. Still, with both banks’ shares initially up on Tuesday, they might start closing the gap. A number of analysts now reckon banks are in better shape than previously thought – helped by the hoped-for improvement in US economic growth. | 