The bank reported a profit of $8.38 billion, or $2.34 a share. Analysts polled by Refinitiv had expected earnings of $2.25 a share. JPMorgan’s trading revenues decreased 2% to $4.4 billion from $4.5 billion a year earlier. Fixed-income trading revenue fell 10%, while equities trading revenue rose 17%. The boost from still low – but rising — interest rates is likely to be a major focus for investors. Though an increase in rates can help the profitability of big consumer lenders like JPMorgan, they can also drag down mortgage banking revenue and force banks to pay more to depositors.
JPMorgan extended $22.5 billion in mortgages in the quarter, a decrease of 16% from the $26.9 billion the bank extended in the third quarter a year ago. Revenue in the bank’s home lending division, one of the largest in the U.S. by volume, was $1.31 billion, down 16% from the $1.56 billion it reported in the year-earlier period.
The “Wall Street Journal “ reported earlier this month that JPMorgan is laying off around 400 mortgage employees to help cope with a slowdown in the market.
In the consumer bank, profits rose 60% to $4.09 billion, compared with $2.55 billion in the third quarter a year ago. Overall profit at the corporate and investment bank was $2.62 billion, a 3% increase from $2.55 billion in the same period last year. JPMorgan’s commercial bank earned $1.09 billion, a 24% increase from the $881 million it earned in the year-ago quarter, and the bank’s asset and wealth management unit reported profits of $724 million, compared with $674 million in the third quarter of 2017.
JPMorgan set aside $948 million in the third quarter to cover loans that could potentially turn bad in the future. That compares with $1.2 billion in the second quarter of 2018 and $1.45 billion in the third quarter of 2017. The bank lost $1 billion to loan defaults, or 0.45% of its overall portfolio, compared with a 0.58% charge-off rate in the third quarter of 2017.
Costs increased 7% to $15.62 billion from $14.57 billion a year earlier. At a September conference, Chief Financial Officer Marianne Lake said the bank’s 2018 expenses likely will be closer to $63.5 billion, up from $63 billion that was shared at its annual investor day presentation in February.
The rise is largely revenue related, tied to matters such as transaction costs and brokerage clearing in addition to performance incentives, she said in September.
Big U.S. banks are set to report their most profitable third quarter since the financial crisis. But underneath the blockbuster numbers are reasons for caution.
Bank profits have been strong this year, thanks in large part to a December law that slashed the tax bill for banks and other corporations. But as the tax cuts become business as usual, investors and analysts have turned their attention to worrying signs about the banks’ future growth. Despite a solid economy with rising interest rates—normally a boon for banking—lending activity hasn’t grown as quickly as hoped, and trading is expected to be lackluster.
Bank stocks jumped early in the year as market volatility fueled revenue on their equities-trading desks, but they have have flatlined since then. The KBW Nasdaq bank index is roughly flat so far this year, compared with an 8% increase in the S&P 500.
Banks generally benefit as interest rates rise because they can charge more on loans—but that impact is muted if fewer borrowers take out new loans. Mortgage growth, for one, is slowing. Overall growth in loans to companies and consumers remains stubbornly slow, with an early-year pickup fading over the summer. Some analysts believe banks are backing off some lending because they are worried the U.S. economy is at the top of its cycle. Some indicators, like credit-card charge-off rates, have been rising, though that rate leveled off over the summer.
Banks are likely to report that their business from advising companies has slowed. Volumes of completed mergers and acquisitions, bond offerings and stock offerings all tailed off in the third quarter from a year ago. A possible trade war and uncertainty over other macro trends roiled stock markets this year, which gave the lift to banks’ equities-trading operations.