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Summary
- The global banking institution beat its profit estimates for the quarter
- Only one of the major units (consumer banking) reported a drop in profit and revenue
JP Morgan Chase & Co, one of the largest lenders globally, recently released its financial results for the third quarter of the year 2020. The global bank’s net income amounted to $9.4 billion, up by 4 per cent as compared to the corresponding period last year in 2019. The pre-share profit also shot up to $2.92.
The international bank has kept a sum of merely $611 million towards loan loss reserves during the Q3. Given the prevailing uncertainty due to the ongoing coronavirus pandemic throughout the world, the company kept its credit reserves at a value of $34 billion for the quarter.
The banking group’s CET1 ratio was calculated to be 13 per cent, which had increased by 60 basis points as compared to the corresponding period in 2019.
For consumer and community banking segment, the net revenue for consumer and business banking plummeted by 18 per cent due to a contraction in the deposit margin. Net revenue for home lending was up by 17 per cent compared to same period in 2019. For cards and auto segment, it was marginally down by 4 per cent for Q3 2020.
The applaudable performance in the midst of coronavirus led crisis came about due to good investment banking performance and much lower number of credit losses than was being anticipated earlier.
(Source: JP Morgan Chase website)
The banking group’s revenue from the corporate and investment banking division shot up by 12 per cent for Q3 2020 against Q3 2019, and rose by 29 per cent for its markets and securities services segment.
Going forward, the bank wished the Federal Reserve to remove restrictions on share buy back and dividend caps. In such a scenario, it would come out with a fresh buyback plan in Q1 2021, expressed a JP Morgan spokesperson.
Beating the analyst estimates
The earning of 2.92 dollar per share was above the analyst estimated of 2.35 dollars a share. The revenue for the third quarter was reported to be $29.94 billion (analyst estimates: $28.63 billion).
(Source: JP Morgan Chase website)
According to market experts, the bank was able to shine at the Wall Street, despite the ongoing uncertainties surrounding the US economy’s growth prospects. During H1 2020 itself, JP Morgan had strengthened its loan loss reserves by a whooping amount of $19 billion.
The bank seemed to be confidant about the global economy recovery, even if it takes time, expressed the experts.
At the same time, the bank remained cautious about the short-term outlook for the US. In the latest JP Morgan economic outlook for the US, it was estimated that the unemployment rate across the nation could go as high as 7.3 per cent by December 2021. The bank also said that the US government should come out with a stimulus package which will speed up the growth numbers for the country’s output.
Moving assets from UK
There are media reports saying that the JP Morgan Chase & Co is in the process of shifting assets worth £184 billion from Britain to Germany, due to a chance of a no deal Brexit between Britain and the European Union. The migration is scheduled to be completed by the end of December 2020, thereby making JP Morgan the sixth largest lending institution in Germany.
The post Brexit transition period would expire on 31 December 2020 and global banks are worried over their fate in case a favourable deal is not worked out between the two sides.
On similar lines, the Citibank, the Stanchart, and the UBS group are also in the process of enhancing their Frankfurt operations, due to the looming uncertainty over Brexit talks.
Earlier in September 2020, JP Morgan had announced that it would be shifting around 200 of its staff out of London as it feared that there was no progress in the Brexit talks regarding the financial services domain.
The bank currently employs close to 19000 people in the United Kingdom. Out of these, nearly 12000 work out of London. Many of these workers are continuing to work from home, with the advent of a second wave of Covid-19 infections across the nation, due to which stricter social distancing restrictions are in place.
Stock performance
The company stock (LON:0Q1F) peaked at a value of GBX 135.53 on 15 February for the year 2020, after which it dipped sharply to GBX 85.97 on 14 March. After that it has been oscillating up and down, but gradually moving up. The company stock closed at a value of GBX 101.11 on 13 October. It had a negative year to date return of 27.85 per cent.
Outlook
The bank would be constructing its new headquarters at New York, which is a long-term growth decision, said Jamie Dimon, CEO, JP Morgan Chase. The new HQ would be inaugurated in the year 2024, as per the bank’s plans. The office complex can accommodate close to 14000 people, added Dimon.
For now, the company would have to stick to a work from home arrangement, till the pandemic subsides, on which no one has any clarity.
Overall, the bank’s strategy has worked well and it has sailed smoothly through the Covid-19 led crisis till now. It was proactive in maintaining good reserves during the first half of 2020 itself, while the customers also supported the bank by timely payments of their credit bills and business loans.
