JP Morgan and Citi beat the odds

Posted on Oct 13, 2020 at 5:29 PMUpdated Oct 13, 2020, 7:18 PM

“I do not anticipate a return to normal before the summer of 2021. We will have to live with that” Jamie Dimon, the boss of the first American bank, said a few days ago, referring to the Covid-19 crisis.

But the bank he heads, JP Morgan, just like his rival Citi, which published their quarterly results on Tuesday, however weathered the turbulence of the health crisis very well, marked by record provisions at the start of the year.

Both banks performed above expectations and significantly slowed the pace of provisions related to defaults.

Between July and September, JP Morgan generated $ 29.1 billion in revenue (stable over one year) for $ 9.44 billion in net profit (+ 4%). Its earnings per share thus amounted to 2.92 dollars in the third quarter, against 2.23 dollars expected by analysts, according to Refinitiv data.

This increase was driven by revenues from trading activities – due to the rebound in financial markets – which rose 30% over the quarter to $ 6.6 billion, bringing the bank’s profit growth to + 52%. investment ($ 4.3 billion).

This performance is coupled with an improving outlook on credit risks, as the bank spent only $ 611 million in new provisions, against nearly $ 10.5 billion in the second quarter.

Michael Corbat, the boss of Citi, was also confident. “We continue to go through the Covid pandemic extremely well, he said on the occasion of the results. Credit costs have stabilized, deposits continue to grow and revenues are up 3% year-to-date ”.

Despite a decline of 34%, the American bank has, like JP Morgan, largely beaten the expectations of analysts with a net profit of 3.2 billion dollars, against 1.8 billion expected.

Its earnings per share thus amounted to 1.40 dollars, against 0.92 expected by the consensus of analysts. The strong growth in trading revenues (+ 15% in equities and + 18% in bonds), like JP Morgan, boosted its revenues for the quarter ($ 17.3 billion, -7%).

Worsening growth forecasts

But the bank especially surprised analysts by the very sharp slowdown in its provisions for default. After setting aside some $ 15 billion in the first half, Citi spent “only” $ 2.26 billion in provisions in the quarter.

Figures that contrast with the slowdown in the US economy, the still high unemployment rate, and the number of companies undergoing restructuring. Citi, however, downgraded its forecasts for growth (forecasting GDP up 3.3% in 2021, compared to 5.5% initially) and the job market.

In front of investors in September, its financial director Mark Mason had said to foresee “Additional growth in reserves, although for a significantly smaller amount”.

Without a direct link to the crisis, the two banks also saw financial regulation weigh on their accounts for the quarter. At the end of September, JP Morgan paid $ 920 million for manipulation in the metals markets.

Citi for its part also had to pay $ 400 million for flaws in internal controls to its banking supervisor, the latter criticizing “Serious and old deficiencies and unsafe or even hazardous practices” in its risk management. The sanction helped push the bank’s spending up to nearly $ 11 billion by 5%.

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