JPMorgan Chase (NYSE: JPM) posted strong performance in its third-quarter 2024 results, traditionally beating analysts' expectations for both profit and revenue. In terms of interest income, the bank generated more than originally expected, which only contributed to the overall results. Is this stock still an attractive investment opportunity?
Key financial indicators
The company reported earnings of $4.37 per share, significantly beating LSEG analysts' estimate of $4.01 per share. The bank's revenue came in at $43.32 billion, beating expectations of $41.63 billion. While net profit fell 2% to $12.9 billion, sales rose 6%.
Net interest income (NII) rose 3% to $23.5 billion, above the estimate of $22.73 billion according to StreetAccount. This increase was mainly supported by gains on investment in securities and growth in credit card loans.
CEO statement and regulatory concerns
In a statement, CEO Jamie Dimon praised the company's quarterly results, but also warned of growing geopolitical risks and regulatory pressures. Dimon called the current conditions "treacherous and deteriorating" and called for a review of current regulatory measures.
"We believe that the rules can be set to support a strong financial system without unnecessary consequences for the economy," Dimon said. He added that it is important to review the current rules and understand their impact on economic growth and the health of markets.
Performance of investment operations
The bank's results were also supported by the performance of the Wall Street division. Investment banking fees rose 31% to $2.27 billion, above expectations of $2.02 billion. Revenue from fixed income trading came in at $4.5 billion, the same level as a year ago, but at the same time beating the estimate of $4.38 billion. Revenue from stock trading rose 27% to $2.6 billion, slightly beating the expected $2.41 billion.
Heightened expectations for 2024
The company also raised its full-year outlook for net interest income to approximately $92.5 billion [1], up from its previous estimate of $91 billion. Total annual spending is expected at $91.5 billion, down from an earlier estimate of $92 billion.
The company's provision to cover credit losses was $3.1 billion in the quarter, which was worse than the estimated $2.91 billion. The bank had depreciation of $2.1 billion and increased provisions for future losses by $1 billion. Chief Financial Officer Jeremy Barnum said consumers were "fine and on solid ground" and the increase in reserves was due to growth in credit card volumes, not a weakening of consumers.
Effects of changing interest rates
JPMorgan has been able to adapt well in an environment of rising interest rates, achieving record net income since the start of the Fed's rate hikes in 2022. However, with interest rate cuts coming, there are questions about how the bank will handle this transition. Like other large banks, its margins can be squeezed when yields on interest-bearing assets such as loans fall faster than the cost of financing. However, it is important to note that the bank's business is largely diversified into the investment banking segment, which, on the other hand, can benefit even more from the changing US monetary policy.
Stock performance
JPMorgan shares have risen by about 30% to their highest level this year[1], surpassing the 20%[2] increase in the KBW Bank index.* Despite the expected challenges of falling interest rates, JPMorgan is proving to be a stable player with the potential for further growth. The bank is well-positioned to meet the challenges of a changing economic environment and is expected to continue to grow thanks to its strong investment banking fundamentals and efficient cost management.
* Past performance is not a guarantee of future results
[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which is subject to change. Such statements are not a guarantee of future performance. They involve risks and other uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements
[1] JP Morgan Chase stock price performance over the past five years: https://tradingeconomics.com/jpm:us
[2] KBW Bank price performance over the past five years: https://www.google.com/finance/quote/BKX:INDEXNASDAQ?sa=X&ved=2ahUKEwjavImKwZKJAxVG0QIHHZEZLG0Q3ecFegQILRAf&window=5Y
