- Analysts estimate EPS of $2.87 vs. $3.74 in Q3 FY 2021.
- Net interest margin is expected to rise YOY.
- Total revenue is expected to increase modestly YOY, but at the fastest pace in seven quarters.
JPMorgan Chase & Co. (JPM), the largest U.S. bank by consolidated assets, is likely to report that Q3 2022 profit slid by almost a quarter from the same period a year ago as investment banking fees dropped, even as interest income rose.
JPMorgan is likely to say earnings per share (EPS) for Q3 FY 2022 declined 23.3% year-over-year (YOY) to $2.87 as revenue climbed 6.9% to $31.7 billion, according to an average estimate from Visible Alpha. JPMorgan releases results on the morning of Oct. 14.
Banks including JPMorgan face a challenging economic environment as merger deals slow along with stocks and the Federal Reserve keeps raising rates to combat persistent inflation. JPMorgan chief executive officer (CEO) Jamie Dimon said Oct. 10 that a "very serious" combination of headwinds is likely to push the U.S. and global economy into recession by the middle of next year, citing accelerating price increases, Fed rate hikes and the war in Ukraine. Dimon's comments suggest that the lender may have trouble rebounding as the economy slows in the wake of the pandemic.
Investors focus on JPMorgan's net interest margin because it's a key banking industry metric, reflecting the difference between interest banks earn on their assets and the interest they pay to depositors and other creditors. The net margin probably rose to its highest in more than two years after the Fed's rate increase.
JPMorgan shares, little changed in the quarter, were down 36% in the 12 months through September, compared with a 17% drop in the S&P 500.
JPMorgan Chase Earnings History
JPMorgan's profit has gyrated in the past three years, dropping in the first two quarters of 2020 as the virus spread. It then increased for five consecutive quarters through Q3 FY 2021 before dropping in the next three periods on a YOY basis.
The bank's revenue has also has been erratic. Revenue dropped YOY in five of the last 10 quarters, with three of them in the past five quarters. Growth has generally been anemic, climbing by just 0,8% in the second quarter. Revenue probably climbed 6.9% YOY in Q3 FY 2022.
|JPMorgan Chase Key Stats|
|Estimate for Q3 FY 2022||Q3 FY 2021||Q3 FY 2020|
|Earnings Per Share ($)||2.87||3.74||2.92|
|Net Interest Margin (%)||1.99||1.62||1.82|
Source: Visible Alpha
The Key Metric
JPMorgan's net interest margin measures the gap between the income banks generate from credit products like loans and mortgages and the interest they pay to depositors and other creditors. It is analogous to gross margin, reported by non-financial companies, which is the difference between sales and cost of goods sold. In extremely low interest rate environments, net interest margins get squeezed as banks lower rates charged to borrowers to remain competitive but they are reluctant to push rates they pay to creditors below the lower zero bound. Note that JPMorgan refers to net interest margin as "net yield on interest-earning assets" in its financial materials.
Net interest margin is an especially important metric to watch at this juncture. JPMorgan's net interest margin gradually fell in 2020 and 2021 after the Fed lowered interest rates to mitigate the shock of COVID-19, making it easier for households and businesses to borrow. The Fed's rate hikes have already started to improve the bank's net interest margin.
JPMorgan's net interest margin ranged from 2.37% to 2.57% between Q1 FY 2018 and Q1 FY 2020. It dropped to 1.99% in Q2 FY 2020 and fell further over the subsequent quarters, reaching a low of 1.62% in Q2 and Q3 FY 2021. Since then, it's partially recovered at a slow pace. In Q2 of this year, net interest margin rose to 1.80%, its highest in nine quarters. Analysts estimate that net interest margin will rise again in Q3, reaching 1.99%, still far short of pre-pandemic levels.
JPMorgan. "EARNINGS RELEASE FINANCIAL SUPPLEMENT SECOND QUARTER 2022," Page 4.
New York Times. "Big Banks Prepare for Downturn, but Don’t See Recession Yet."
Statista. “Leading Banks Worldwide in 2022, by Revenue from Investment Banking.”
Federal Reserve Statistical Release. “Insured U.S.-Chartered Commercial Banks That Have Consolidated Assets of $300 Million or More, Ranked by Consolidated Assets.”
Visible Alpha. "Financial Data."
JPMorgan Chase & Co. "JPMorgan Chase to Host Third-Quarter 2022 Earnings Call."
CNBC. "Fed raises rates by another three-quarters of a percentage point, pledges more hikes to fight inflation."
CNBC. "‘This is serious’: JPMorgan’s Jamie Dimon warns U.S. likely to tip into recession in 6 to 9 months."