JPMorgan FICC Revenues Plunge 27%, "Low Volatility" Blamed

Launching Q3 earnings season, moments ago JPM reported third quarter Net Income of $6.7 billion and EPS of $1.76, beating expectations $1.67 and 18 cents, or 7% higher than a year ago, on "managed" revenue of $26.2 BN, beating consensus expectations of $25.7 BN, up 3% from the $25.5BN in Q3 2016 revenue .

JPM reported average core loans up 7% Y/Y and 2% Q/Q, with net interest income up $1.2Bn Y/Y to $12.5bn, “primarily driven by the net impact of rising rates and loan growth" even as average NIM missed.

Commenting on the results, if not on this morning's new all time high in bitcoin, Dimon said “JPMorgan Chase delivered solid results in a competitive environment this quarter with steady core growth across the platform. And for the first time, the Firm led the nation in total U.S. deposits, as consumers and businesses continue to view us as their partner of choice.

The global economy continues to do well and the U.S. consumer remains healthy with solid wage growth. Unfortunately, natural disasters in the U.S. and abroad have impacted many of our customers and we have responded with enormous financial support as well as the expertise and generosity of our employees to help these customers, clients and communities. Building on our success to-date in Detroit, we have announced new initiatives in Chicago and Washington, D.C. to drive inclusive economic growth in those communities. We will be there to do our part. And this is in addition to the $1.7 trillion of credit and capital supplied this year to consumers and small and mid-sized businesses and corporate clients.”

Breaking down the data, Dimon said that "in Consumer & Community Banking, card sales and merchant processing volumes were once again up double digits, while loans and deposits continued to grow strongly. In the Corporate & Investment Bank, we continued to lead our peers in Investment Banking fees, and Treasury Services and Securities Services each generated over $1 billion in revenue. Commercial Banking again delivered outstanding performance with record revenue as our long-term investments in the business are paying off. Our Asset & Wealth Management business delivered strong results with record net income and AUM this quarter.”

JPM reported that its provision for credit losses in Q3 was $1.45BN, above the $1.34BN and above the $1.27BN one year ago, suggesting the bank is starting to prepare for stormier weather ahead.

More importantly, in light of recent moves in the yield curve, JPM announced that in Q3 its "net yield on interest-earning assets" or NIM rose modestly from 2.31% in Q2 to 2.37% in Q3.

However, despite the top and bottom line beat, JPM's sales and trading disappointed again, with JPM reporting total markets revenue of $4.5 billion, plunging 21% Y/Y as both FICC and equity sales & yrading revenue for Q3 quarter that missed estimates.

  • Q3 FICC sales & trading rev. $3.16BN vs est. $3.18BN;down 27% "driven by low volatility and tighter credit spreads"
  • Q3 Equities sales & trading rev. $1.36BN vs est. $1.41BN;down 4% Y/Y

On the other hand, Q3 Investment banking revenue was $1.71BN vs est. $1.65BN and just $35MM less than a year ago.

Commenting on the results, JPM said that "fixed income markets revenue was down 27%, as lower revenue across all products was driven by sustained low volatility and tighter credit spreads, against a very strong prior year. Equity Markets revenue was down 4% compared to a strong prior year, reflecting lower revenue in derivatives predominantly offset by strength in Prime Services and Cash Equities. Securities Services revenue was $1.0 billion, up 10%, driven by higher interest rates and deposit growth, as well as higher asset-based fees driven by improving market conditions."

JPM also reported average VaR of only $27, well below the $44 reported a year ago.  On the expense side, JPM reported Corporate and IBank overhead of $4.8B, down 3% YoY, driven as in Q2 by lower compensation expense.

Overall, corporate and IBank revenue fell 9% Y/Y to $8.5 billion, although due to lower overhead net income declined by only $366MM to $2.546 billion.

JPM also reported that Q3 VAR rose modestly from $27 last quarter to $30, well below the $43 last quarter.

Offsetting another quarter of poor trading data was a solid report by the bank's lending arm: the derails:

  • Record revenue of $2.1B, up 15% YoY and 3% QoQ
  • Net income of $881mm, up 13% YoY and down 2% QoQ
  • Net interest income of $1.6B, up 20% YoY and 3% QoQ
  • Average loan balances of $200B, up 10% YoY and 1% QoQ
  • C&I5 up 8% YoY and flat QoQ
  • CRE5 up 13% YoY and 2% QoQ
  • Average client deposits of $176B, up 1% YoY and 2% QoQ

As the FT notes, the results suggest that one strong theme of the earnings season will be relative weakness on Wall Street, set against continued resilience of retail and commercial businesses. At a Barclays-hosted conference in New York last month, which took place with about four-fifths of the quarter in the books, most banks said they expected revenues from trading stocks and bonds to drop by between 15 and 20 per cent, blaming low volumes and low volatility.

That means that gains for the biggest banking groups should be muted. At Credit Suisse, Susan Roth Katzke expects aggregate earnings-per-share for the top 13 banks to be 5 per cent cent higher than a year ago, the lowest year-on-year growth rate since the second quarter last year.


That EPS number may come even as the number of shares outstanding continues to fall, as banks ramp up buyback programmes with the blessing of the US Federal Reserve. According to Barclays, average shares are expected to fall 1.2 per cent in the third quarter, the largest drop since before the financial crisis.

Sadly, for the second consecutive quarter, JPM did not provide a breakdown of the trend in its consumer credit chargeoffs, which as a reminder, was among the biggest flags reported last quarter (more on that shortly).

Finally, JPM provided the following guidance, which was unchanged from last quarter:

  • Expect 2017 net interest income to be up ~$4B YoY, market dependent
  • Expect 2017 adjusted expense to be ~$58B
  • Expect 2017 net charge-offs to be ~$5B
  • Expect 2017 average core loan growth to be ~8%

After a modest kneejerk reaction higher, the stock is now fractionally lower.

Full Q3 earnings presentation below (link):