JPMorgan profit tops Street estimates, but bond trading revenue plummets

Key Points
  • JPMorgan reported earnings per share on revenue that handily beat Wall Street expectations.
  • However, bond trading revenue dropped 27 percent, worse than forecast.
  • Chairman and CEO Jamie Dimon did not comment specifically on the trading results, but trumpeted the bank's lead in consumer banking.
JPMorgan beats Street, fixed income revenue down 27% from last year
JPMorgan beats Street, fixed income revenue down 27% from last year

JPMorgan Chase on Thursday reported third quarter earnings well above Wall Street estimates, but share prices fell as investors focused on a big drop in trading revenue.

Here's how the bank did relative to a consensus estimate from analysts polled by Reuters:

  • Earnings per share of $1.76 vs $1.65.
  • Revenue of $26.2 billion vs $25.23 billion.

Fixed income trading revenue fell 27 percent to $3.16 billion, worse than the $3.25 billion projected by FactSet.

The shares closed 0.9 percent lower, still up 11 percent on the year.

"It's a good beat," said Jeffery Harte, principal of Sandler O'Neill. "The credit trends are favorable, the expenses are in line, the capital markets stuff didn't miss too badly."

Regarding the drop in fixed-income trading revenue, the bank noted "lower revenue across all products was driven by sustained low volatility and tighter credit spreads." Equities trading revenue fell 4 percent "reflecting lower revenue in derivatives predominantly offset by strength in Prime Services and Cash Equities." The decline came off a strong third quarter last year.

Overall trading revenue fell 21 percent in the third quarter.

Chairman and CEO Jamie Dimon warned in mid-September that trading revenue dropped 20 percent in the third quarter.

This year's smooth financial markets have been tough on traders. This past September was the least volatile on record for the S&P 500, with an average daily range of 0.4 percent, according to LPL Financial.

Jamie Dimon, chief executive officer of JPMorgan Chase & Co.
Marlene Awaad | Bloomberg | Getty Images

Dimon did not comment specifically on the trading results in Thursday's press release, but trumpeted the bank's lead in consumer banking.

"For the first time, the Firm led the nation in total U.S. deposits, as consumers and businesses continue to view us as their partner of choice," Dimon said in a statement.

"The global economy continues to do well and the U.S. consumer remains healthy with solid wage growth," Dimon said. "Unfortunately, natural disasters in the U.S. and abroad have impacted many of our customers and we have responded with enormous financial support as well as the expertise and generosity of our employees to help these customers, clients and communities."

Average core loans rose 7 percent from last year to $837.5 billion, a 2 percent increase from the second quarter.

The demand for loans was "better than the lowered expectations" on Wall Street, Morningstar senior analyst Jim Sinegal said on CNBC's "Squawk Box." "I think a lot of people were worried that loan demand would drop a bit this quarter. We didn't see that. It seems fairly solid across the board."

Net interest income, a key measure of profitability, rose $1.2 billion from the third quarter last year to $13.1 billion.

Shares fell after the bank's second-quarter earnings report in July after JPMorgan lowered its net interest income forecast for the year by about $500 million to a $4 billion increase from the prior year.

Shares of JPMorgan have surged more than 38 percent since the election to record highs. Bank stocks overall have leaped since the November election. Promises of stimulus from the Trump administration and the Federal Reserve's move toward tighter monetary policy have helped Treasury yields rise, which tends to increase profit margins for banks.

Also Thursday, Citigroup reported third-quarter earnings and revenue that beat expectations.

Correction: This story has been updated to reflect that overall third quarter trading revenue fell 21 percent from the same period last year.