Although Q3 earnings season has just begun, a couple of clear trends are emerging. One is that analysts and companies successfully lowered expectations, and companies are clearing this lower bar. Another is that the most significant weakness is seen in companies with a large portion of foreign revenue due to the effects of a strong dollar.
These trends are also reflected in JPMorgan's (NYSE: JPM) better-than-expected Q3 earnings results which sent shares 8% higher. The company continues to struggle with factors like a slowdown in investment banking and IPO revenue but has benefitted from higher rates. Additionally, there is no meaningful increase in defaults which tends to accompany a deterioration in economic conditions.
Inside the Numbers
In Q3, the bank reported $3.12 in earnings per share which topped analysts' expectations of $2.88 per share. This was a 17% decline from last year with a major factor being the $808 million set aside for loan loss reserves.
Revenue was up 10% and reached $33.5 billion which also exceeded expectations at $32.1 billion estimate. A major factor in JPMorgan's outperformance was net interest income increasing by 34% to reach $17.6 billion due to higher rates and strong loan demand. Analysts were forecasting net interest income of $17 billion. Overall, the company's trading revenue was up 8% as it was able to take advantage of market volatility, however investment banking revenue declined by 47%.
However, JPMorgan CEO Jamie Dimon issued some pretty bleak commentary about the state of the global economy. He noted that "there are significant headwinds immediately in front of us - stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices."
This is one factor in the company booking nearly $1 billion due to declines in the value of its Treasury and mortgage backed securities (MBS) holdings. Dimon also said that in the event of the unemployment rate getting between 5% and 6%, the company would have to bolster its reserves by around $5 billion.