Tuesday 13 October 2020 2:20 pm

Trading surge boosts JP Morgan but Citigroup’s profit suffers

JP Morgan’s third-quarter results beat analysts’ expectations as trading revenue was lifted by a recovery in global markets despite the ongoing coronavirus pandemic.

Its Wall Street rival Citigroup fared less well, however, with profit slipping 34 per cent despite credit costs stabilising.

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JP Morgan’s net income rose to $9.44bn (£7.25bn) from $9.1bn a year earlier. The bank’s earnings per share of $2.92 was comfortably higher than analysts’ estimates.

The surprise rise in profit came in large part thanks to a 30 per cent jump in trading revenue to $6.6bn. That was in turn driven by a recovery in global stock markets in the summer.

The Wall Street giant also set aside less to cover loan losses than in the previous two quarters.

Citigroup’s net income fell to $3.23bn in the third quarter from $4.91bn a year earlier, however. 

The drop reflected a 13 per cent fall in revenue from global consumer banking as well as a $400m penalty for “deficiencies” in its risk controls.

Nevertheless, its earnings per share of $1.40 beat analysts’ expectations, although it was not immediately clear if the fine was included in the total.

It has been a torrid year for banks in the US and around the world. Wall Street lenders set aside a record amount to cover potential loan losses in the first and second quarters.

They have also been hit by the Federal Reserve’s cuts to its target interest rate. It now stands at between zero and 0.25 per cent, the lowest on record. 

Ultra-low rates hurt banks because they squeeze the “spread” from which they make money. That is, the difference between the interest they receive from lending and the interest they pay to borrow.

JP Morgan’s third-quarter revenue fell marginally to $29.9bn. Consumer banking revenue slipped nine per cent, due in large part to lower interest rates.

Yet there were signs the lender was dusting itself off from the worst of the Covid crisis. It put aside just $611m to cover loan losses, down from $10.5bn three months ago.

Rising trading revenue also boosted Citigroup. It saw bond trading revenue rise 18 per cent and equities trading grow 15 per cent. 

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Yet revenue fell for the first time this year to $17.3bn. Part of the drop was explained by consumers saving money during the pandemic and paying down debt.

Citi is currently going through an overhaul that incoming chief executive Jane Fraser hopes will improve risk and control systems.