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Loan growth helps JPMorgan beat expectations despite trading decline

People pass the JPMorgan Chase & Co. corporate headquarters in the Manhattan in this file photo.

Mike Segar/REUTERS

JPMorgan Chase & Co easily beat Wall Street's third-quarter profit expectations on Thursday, with loan growth and higher interest rates more than offsetting weakness in its markets-related unit.

Executives at the largest U.S. bank touted the diverse mix of businesses that allow JPMorgan to weather a dip in one area or another, and played down a 27 per cent drop in bond trading revenue even though weakness has continued into the fourth quarter.

Over all, JPMorgan's profit rose 7.1 per cent in the third quarter compared with the year-ago period, to $6.73-billion, or $1.76 per share. Analysts had expected earnings of $1.65 per share, according to Thomson Reuters I/B/E/S.

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The bank's total revenue of $25.33-billion also topped the average analyst estimate of $25.23-billion.

In early notes to clients, analysts characterized the results as "solid" or "pretty good," given problems in bond trading that have affected Wall Street banks for some time.

"The results were solid but not exceptional," said Morningstar analyst Jim Sinegal.

JPMorgan shares were down 0.4 per cent at $96.48 in morning trading.

Growth in credit cards, auto loans, commercial banking and corporate advisory fees drove the results, with average core loans up 7 per cent during the quarter. JPMorgan's net interest income, or the difference between what it pays for funds and collects from lending them out, rose 10 per cent.

However, markets revenue fell 21 per cent as the slump in bond trading outweighed a more modest dip in equities, slightly worse than the roughly 20 per cent drop Chief Executive Jamie Dimon had forecast at an event in September.

Wall Street banks have been grappling with bond market challenges for most of the past seven years, as client volumes have been depressed for a number of reasons and new regulations have restricted certain activities and made trading more expensive.

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JPMorgan fared worse last quarter than rival Citigroup Inc , which reported a 16 per cent decline in bond trading on Thursday. The trends bode poorly for Goldman Sachs Group Inc , which has struggled more in bond trading recently than other Wall Street banks.

JPMorgan's markets revenue is likely to drop again in the fourth quarter because the year-ago period was strong, Chief Financial Officer Marianne Lake said on a conference call with analysts.

Trading revenue during the fourth quarter of 2016 benefited from a surge in trading activity following the U.S. election.

Still, management maintained earlier guidance for full-year net interest income, expenses, charge-offs and loan growth, indicating that they expect JPMorgan's other businesses to continue to offset capital markets pain.

During a call with reporters, Lake cited "the benefits of diversification and scale," while Daniel Pinto, who runs JPMorgan's investment bank, pointed to "balanced strength across diverse businesses" in a memo to employees.

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