JP Morgan posted a record third quarter in investment banking as the unit pulled in US$3.3bn in fees, up 52% from a year earlier on a rebound in M&A activity and continued strength in equity underwriting.
The bank earned more than US$1bn in each segment of investment banking in the quarter – advisory and debt and equity underwriting.
In advisory, JP Morgan reported revenue of US$1.2bn, up a whopping 187% from the year ago quarter, when the market was struggling though the Covid-19 shutdown. This year transactions are on course for the best year ever and JP Morgan is taking its share of the pie. It was the bank's best quarter ever in M&A.
JP Morgan's equity underwriting revenue surged 41% to US$1bn, the best third quarter ever for the bank. Revenue from debt underwriting rose 3% to US$1bn, another third quarter record.
As expected, revenue from fixed income, currency and commodities trading continued to fall in the third quarter as activity levels 'normalised' following a historic surge last year. FICC revenue fell 20% to US$3.7bn, driven by lower revenue in commodities, rates and spread products, the bank said. The current quarter also included an adjustment to liquidity assumptions in the derivatives portfolio.
The decline in FICC was offset somewhat by continued strength in equities trading in the quarter, which was up 30% from a year ago to US$2.6bn, driven by strong performance across products, the bank said.
It was a stellar quarter overall for JP Morgan, and the strong performance in its corporate and investment bank helped drive a better-than-expected 24% jump in third quarter profit to US$11.7bn, which was also helped by the release of US$2.1bn in credit reserves.
JP Morgan chief executive Jamie Dimon said the bank released reserves as the economic outlook continues to improve and the bank’s scenarios improved accordingly.
US banks stashed tens of billions in 2020 in preparation for a steep recession in the wake of the Covid-19 pandemic. This year most have begun to release those reserves, providing an artificial boost to earnings.
“These reserve calculations, while done extremely diligently and carefully, involve multiple, multi-year hypothetical probability-adjusted scenarios, which may or may not occur and which may continue to introduce quarterly volatility in our reserves,” Dimon said in a statement.
JP Morgan’s net income rose to US$3.74 a share, easily beating the US$3 a share analysts were expecting. A year ago, the bank earned US$9.4bn, or US$2.92 a share.
The bank said average loans rose 5% in the quarter and average deposits were up 19%. Total revenue rose 1% to US$29.7bn.
JP Morgan is the first of the major banks to report Q3 results. Bank of America, Citigroup, Wells Fargo and Morgan Stanley report results on Thursday, followed by Goldman Sachs on Friday.