10/14/2022: JP Morgan Reports Q3 Earnings
"Significant headwinds immediately in front of us" said CEO
JP Morgan reported their Q3 earnings this morning. Q3 profit fell 17% from a year earlier to $9.74 billion, or $3.12 a share, as the firm added to reserves for bad loans by a net $808 million. Revenue jumped 10% to $33.49 billion in the quarter, thanks to higher interest rates. Both earnings and revenue beat analysts’ estimates and JPM 0.00 stock was up 1.66% while SPY 0.00 tanked 2.28% .
The bank said customers spent more money on their credit card with card spending up 29% YoY and card loans up 15% YoY. The higher spending is partly due to high inflation in groceries, rent, child care and other expenses. JPM’s CFO said that while consumer deposits remain strong, inflation is starting to bite. He told analysts that
That extra money they have in their checking accounts will deplete probably by sometime mid year next year.
In the press release, JP Morgan CEO Jamie Dimon also said
In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy. However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices. While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes so we can continue to serve customers even in the most challenging of times
Ouch! JP Morgan executives are basically telling us American consumers will use up their savings in the middle of the next year while high interest rates and inflation are going to pose serious trouble for the economy. I suppose this is not some shocking news. But they do give us a timeline of how things could unfold. Chances are we are probably going to see CPI going up for at least another 3 months as consumers are still spending their savings. But the rising rates and inflation are going to crush American consumers eventually when they are out of cash and credit around mid-2023. Hopefully, that will be the bottom and we will get through the ordeal to see the light at the end of the tunnel by the end of 2023.
NII was solid at JPM and MS. Jpm stated this was peak NII and gave some hints at what to expect next year. NII does poorly when yield curves are flat or inverted. Right now their is a little bit of steepness to fed fund rate but effective next fomc it will be flat.
What I worry about most is the amount of treasuries and mortgages that they hold. Treasuries already have fallen 20%+ from peak. Homes get risky when prices fall more than down payments. MS had some issues with investments this quarter.
Jpm also upped its credit loss around 1.5B. Saying 5B plus to come over a few quarters with a 6% unemployment base case.
Also interesting, today's Michigan consumer sentiment points to deanchoring inflation expectations. The fed expressed in meeting minutes they are very worried about this happening and I'd expect them to respond aggressively. http://www.sca.isr.umich.edu/