JPMorgan Q3 earnings have come in better than expected, at $1.02.
But it’s a bank report, so were going to need to look deeper to see if it’s good.
The first red flag is the Debt Valuation Adjustment: The company booked a big gain BECAUSE its bonds worsened significantly, meaning technically on an accounting basis, the company’s equity jumped. Read an explanation here.
Here’s their commentary
Jamie Dimon, Chairman and Chief Executive Officer, commented: “The Firm reported third-quarter net income of $4.3 billion, representing a 13% return on tangible common equity1. It is notable that these results included several significant items(*), including a $542 million pretax loss in Private Equity, $1.0 billion pretax of additional litigation expense in Corporate and a $1.9 billion pretax DVA gain. The DVA gain reflects an adjustment for the widening of the Firm’s credit spreads which could reverse in future periods and does not relate to the underlying operations of the company. All things considered, we believe the Firm’s returns were reasonable given the current environment.”
This is also some useful commentary about the way things are going:
Further commenting on business results, Dimon said: “The Investment Bank’s revenue, excluding the DVA gain, was down substantially; however, we are gratified that the business maintained its #1 ranking in Global Investment Banking Fees, and we believe that we have maintained a healthy share of the global sales and trading market. Retail Financial Services demonstrated good underlying performance, with solid revenue and increased deposits in Consumer & Business Banking and strong retail mortgage origination volumes in our Mortgage Banking business. In our Card business, credit card sales volume, excluding Commercial Card, was up 10% compared with the prior year. Commercial Banking reported continued loan growth, including middle-market loan balances up 18% compared with the prior year, and record deposit2 balances of $180.3 billion were up 31% compared with the prior year. In Treasury & Securities Services, trade finance loans increased 69% to $30.1 billion, and deposit2 balances increased 41% to $341.1 billion. Corporate/Private Equity results were negatively affected by market conditions, the Firm’s decision to take certain positions in its securities portfolio in anticipation of an eventual increase in interest rates, and additional litigation expense.”
Here are the key points from the press release, which you can download here.
- Challenging investment banking and capital markets environment; Firm maintained its #1 ranking for Global Investment Banking Fees year-to-date
- Consumer & Business Banking reported solid revenue, up 6% compared with prior year, and deposits up 7%; added 60 new branches during the quarter
- Credit Card sales volume2 up 10%; net charge-offs declined as expected
- Commercial Banking reported solid revenue, with strong loan growth, up 9%, and record deposit2 balances, up 31%
- Treasury & Securities Services reported strong growth in deposit2 balances, up 41%
- Third-quarter results included the following significant items:(*)$1.9 billion pretax ($0.29 per share after-tax) benefit from debit valuation adjustment (“DVA”) gains in the Investment Bank, resulting from widening of the Firm’s credit spreads $542 million pretax ($0.09 per share after-tax) Private Equity loss $1.0 billion pretax ($0.15 per share after-tax) additional litigation expense, predominantly for mortgage-related matters, in Corporate
- $1.9 billion pretax ($0.29 per share after-tax) benefit from debit valuation adjustment (“DVA”) gains in the Investment Bank, resulting from widening of the Firm’s credit spreads
- $542 million pretax ($0.09 per share after-tax) Private Equity loss
- $1.0 billion pretax ($0.15 per share after-tax) additional litigation expense, predominantly for mortgage-related matters, in Corporate
Original post: Stay tuned.
The first big financial earnings report is due out at 7:00 AM ET.
Analysts expect EPS of $0.93 on revenue of $25.3 billion.
We’ll have it out.