JPMorgan (NYSE: JPM) saw some profit-taking as the stock dipped 3% following a strong, third-quarter earnings report in which the company exceeded analysts' estimates for nearly every metric. One tailwind for JPMorgan and all bank stocks has been that the economy has done much better than feared more than a year ago.
Thus, the company is able to remove its loan-loss reserves which added $1.5 billion to earnings this quarter. JPMorgan is a well-diversified bank in terms of its exposure to Main Street and Wall Street. So, its earnings are considered an effective leading indicator for the financial sector and overall economy.
Inside the Numbers
In Q3, JPMorgan generated $3.74 in earnings per share, topping expectations of $3 per share. Of the $3.74 in EPS, $0.19 came from a tax bonus while $0.52 came from releasing loan-loss reserves. Revenue increased by 2% and also topped expectations at $30.4 billion vs $29.8 billion.
In its conference call, management noted that the economy continued to grow despite some effects of supply chain disruptions and the Delta variant. Revenue growth was driven by strength in investment banking and asset and wealth management divisions. Net interest income was $13.2 billion, slightly topping estimates of $13 billion.
Fixed income revenue declined 20% to $3.7 billion, below the $3.73 billion consensus estimate. However, equities trading contributed $2.6 billion, topping the $2.16 billion estimate.
Strength in the bank's Wall Street side isn't surprising given the robust M&A and IPO market. In total, investment banking revenue increased by 50% to $3.3 billion. This division carried the company through the pandemic, however, there have been concerns that growth would moderate, and it would face tough comps. However, this segment has shown no loss of momentum.
Its wealth management division also posted a 21% increase to $4.3 billion on higher management fees and growth in accounts. Assets under management rose 17% to $3 trillion largely due to rising equity markets.
Another bright spot is the company noted improving loan growth due to higher spending and increased revolving of debts by credit-card users.
Stock Price Outlook
JPMorgan's earnings foreshadowed strong earnings by other Wall Street-centric banks. Overall, the stock is up about 28% on the year, outperforming the S&P 500 (NYSE: SPY).
The financial sector is likely to grow with the economy, and JPMorgan is one of the highest-quality banks. It has a P/E of 13, cheaper than the S&P 500, and a 2.2% dividend.