10/13/2023: $JPM Earnings Beat Expectations
JP Morgan reported Q3 earnings this morning before market open. Revenue was $40.7B vs. $39.55B expected. EPS was $4.33 vs. $3.89 expected. JPM 0.00%↑ beat expectations handsomely primarily due to rising net interest income, which grew 30% YoY.
With regard to JPM’s balance sheet and liquidity, CEO Jamie Dimon made the following comment:
Our total loss-absorbing capacity (equity plus long-term debt) is a formidable $496 billion, while loans, which are our riskiest assets, are at $1.3 trillion. Our liquidity is extraordinarily high with cash and marketable securities of $1.4 trillion.
Mr. Dimon concluded his commentary with the following:
Currently, U.S. consumers and businesses generally remain healthy, although, consumers are spending down their excess cash buffers. However, persistently tight labor markets as well as extremely high government debt levels with the largest peacetime fiscal deficits ever are increasing the risks that inflation remains elevated and that interest rates rise further from here. Additionally, we still do not know the longer-term consequences of quantitative tightening, which reduces liquidity in the system at a time when market-making capabilities are increasingly limited by regulations. Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the Firm for a broad range of outcomes so we can consistently deliver for clients no matter the environment. To conclude, I want to thank our extraordinary employees for all of their hard work in making us one of the most trusted financial institutions in the world.
Apparently, it’s increasingly harder to get bank credit these days. Big banks like JPM still have capacity to underwrite loans but the interest rates are way higher and they are more selective. Banks that hold long-duration fixed-rate assets on the balance sheet such as long-dated treasuries or 30-year mortgages can no longer issue new loans freely to preserve liquidity. It’s hard to say how this will play out but the Fed still holds $7.9T of assets on its balance sheet. It’s $1T less than a year ago but still $3.7T more than Feb 2020. I can’t imagine what will happen if the Fed takes a couple more trillions of liquidity out of the system at a time when the liquidity crunch is already seen at various corners of our economy.