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  • Writer's pictureIshfaaq Peerally

JPMorgan Chase 3Q20 Earnings Analysis

The earnings season started yesterday with JPMorgan Chase reporting third quarter earnings, which were better than expected.

We can see a great improvement from last quarter, as the provision for credit losses falls to $611 million. This also shows that the economy is recovering (or that the Fed printing money is working). We will need to look a little deeper to really understand what these earnings mean for the economy.

Slight improvement in Consumer and Community Banking confirms that the economy is recovering.

Compared to last quarter, Corporate and Investment banking is doing worse as the Fed has now limited their intervention and even the stock market growth has slowed down a little. But overall, we can say that things are getting back to normal.

It seems that JPMorgan Chase is back to where it was last year, before the recession. ROE is back to 15% even if interest rates are lower now than they were a year ago.

However, we need to acknowledge that long-term low interest rates won't be good for the banking business. This is something that CFO Jennifer Piepszak was asked about during the conference call by analyst Matthew O'connor.

The solution is something that we talked about numerous times, the company is expanding businesses both domestically and internationally.

While it is true that generally, higher interest rates are better for banks, including JPMorgan Chase, net income has been increasing nevertheless with zero interest rates from 2008 to 2015. That’s mainly because of their expanding business. As Jennifer Piepszak pointed out, they got approval to enter 10 more states. Wells Fargo is in decline and JPMorgan Chase and Bank of America are here to take market share.

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