Rare profit miss by JPMorgan: 1st time in nearly 3 years: What went wrong? SpaceX IPO euphoria fades? Slowdown explained
JPMorgan Chase reported its first quarterly profit miss first time in nearly three years as market volatility and an uncertain economic outlook slowed dealmaking and bond trading in recent months.
The bank reported a profit of $5.57 per share for the three months ended September 30. Analysts on average had expected $5.85 per share, according to estimates compiled by LSEG.
This came despite strong equities trading and growth in its lending business.
“JPMorgan may be a victim of its own success,” said Brian Mulberry, chief market strategist at Zacks Investment Management, adding that the bank had set a “high bar to clear in Q3”.
What went wrong at JPMorgan?
JPMorgan reported an 8% decline in third-quarter investment banking fees versus the second quarter, even as it recorded a 14% rise compared with a year earlier.
Revenue in its markets division climbed 15% in the third quarter from the prior year. Equity markets surged 49% as investors rejigged their portfolios amid the volatility
Fixed-income trading revenue, however, declined 4%, offsetting some of the gains.
Mulberry said, “It is a warning that higher-for-longer interest rates could have an impact on dealmaking fee revenues in the near term.”
The miss marks a setback after a strong run for Wall Street banks, with JPMorgan’s earnings last falling short of estimates in the fourth quarter of 2023.
Is SpaceX IPO euphoria fading?
The slowdown in dealmaking comes after a strong start to the year for initial public offerings (IPOs), triggered by Elon Musk’s SpaceX listing. However, the IPO market has since lost momentum as volatility and economic uncertainty made companies more cautious about going public.
For investment banks, fewer listings mean potentially lower underwriting fees and fewer follow-on share sales. Yet the slowdown does not necessarily signal that deals are being abandoned.
JPMorgan Chief Financial Officer Jeremy Barnum said the bank’s investment banking pipeline remained “very strong”, despite a slowdown in the second half of September.
He added that it was too early to be certain, but expected deals to be “delayed rather than canceled”.
Chief Executive Jamie Dimon similarly acknowledged that investment banking activity had moderated. “The US economy continued to be fueled by strong business investment and ongoing consumer spending,” he said.
What next?
JPMorgan’s underlying lending business remained resilient. Net interest income, excluding markets – the difference between what a bank earns off loans and pays out on deposits – increased 6% in the quarter to $24.7 billion. Average loans rose 10% year-over-year.
The bank further raised its interest income forecasts for the year to roughly $106.2 billion, market dependent, and $97.2 billion, excluding markets. It had previously guided to $105.5 billion and $96.5 billion, respectively.
For 2027, the bank forecast net interest income, excluding markets, of about $107 billion on a preliminary basis.
Loan growth has come into sharper focus after the Federal Reserve hiked interest rates for the first time since 2023 in September, with hawkish signals of more possible tightening ahead.
That, combined with a spike in bond yields, has the potential to push borrowers out of the credit market as they navigate higher borrowing costs and tighter financial conditions.
