Tough Crowd

Image source: Wenhong and Skreidzeleu - Shutterstock

What's going on?

JPMorgan reported better-than-expected earnings on Friday, so whats a US investment bank got to do to get a positive reaction around here?

What does this mean?

There were deals akimbo last quarter, and JPMorgans investment banking division which advises on mergers and acquisitions and charges fees for the privilege duly saw its revenue climb by a better-than-expected 28% last quarter compared to the same time in 2020. The bank added $1.8 billion in loan loss reserves to its bottom line too that is, cash it had put aside during the pandemic in case customers couldnt cover their debts. All in all, JPMorgans profit topped expectations last quarter, helping take 2021s full-year profit to a record high (tweet this).

And yet. Investors still sent the investment banks stock down 3% after the announcement, probably because the results beat expectations by the smallest margin in seven quarters. In fact, JPMorgan wouldve missed estimates altogether if not for the release of that $1.8 billion and any leftover loan loss reserves won’t last forever

Why should I care?

The bigger picture: Let earnings season begin.
JPMorgan wasnt the only banking giant to provide an update on Friday: Wells Fargo and Citi also reported better-than-expected results, if for very different reasons. The dealmaking frenzy helped drive revenue from Citis investment banking segment 43% higher than the same time last year, while rising demand for loans saw Wells Fargo lend 5% more cash to customers in the second half of the year.

For markets: Start as you mean to go on.
JPMorgans lukewarm reception wasnt a surprise: investors have daft expectations of banks right now, given that this years all-but-inevitable interest rate hikes will allow them to make more on the loans they offer. Such is why an index tracking US bank stocks jumped more than 10% last week its best start to a year on record. So consider this a warning shot: investors arent going to be forgiving of less-than-stellar results from finances heavy-hitters.

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

Battle Stations

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.