JPMorgan Chase fell short of quarterly profit estimates for the first time in nearly three years as market volatility and an uncertain economic outlook dampened dealmaking and reduced bond market trading activity in recent months.
Earnings from the largest US bank underscored how uncertainty over interest rates, soaring energy prices and geopolitical tensions shaped the quarter. While equities trading thrived, dealmakers largely stayed on the sidelines, threatening what was expected to be a banner year for investment banking.
The deals desk, in particular, had to contend with a sharp loss in momentum in the IPO market after a cracking start to the year, highlighted by the historic listing of Elon Musk's SpaceX.
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%.
"JPMorgan may be a victim of its own success... as it creates a high bar to clear in Q3 and clearly it had some difficulty doing just that," said Brian Mulberry, chief market strategist at Zacks Investment Management, which holds shares of the bank. "It is a warning that higher-for-longer interest rates could have an impact on dealmaking fee revenues in the near term."
Investment banking and trading revenues came in at the lower end of the bank's own estimates, too. In September, JPMorgan Co-President Doug Petno said investment banking fees and markets revenue were expected to be up in the "mid-to-high teens" percentage in the third quarter.
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. It was the banking giant's first profit miss since the fourth quarter of 2023, according to LSEG data.
"The franchise still looks healthy, but the quarter's quality was a step below what investors have come to expect," David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, said, calling the earnings a rare miss against expectations.
Analysts have said the IPO market has been selective, not shut, and delayed offerings could still launch if conditions stabilize during the fourth quarter.
Banks earn lucrative fees from underwriting the initial offering, as well as from subsequent follow-on sales as companies issue more shares.
"Investment banking fees each rose at a mid-teens rate, helped by strong levels of client activity, although activity did moderate somewhat during the quarter," CEO Jamie Dimon said in a statement.
On a call with reporters, JPMorgan Chief Financial Officer Jeremy Barnum said the investment banking pipeline remained very strong, despite a slowdown in the second half of September.
JPMorgan raised its interest income forecasts for the year to roughly $106.2bn, market dependent, and $97.2bn, excluding markets. It had previously guided to $105.5bn and $96.5bn, respectively.
Goldman Sachs
Goldman Sachs reported higher third-quarter profit on Tuesday, sending shares higher as CEO David Solomon said there was no plans for a leadership transition.
Profit at the New York financial heavyweight during the July-September period was $5.1bn, up 33% from the year-ago level but down 20% from the second quarter when business conditions were especially robust.
Revenue rose 23% to $18.7bn.
Like rival JPMorgan Chase, which reported earlier Tuesday, Goldman saw muted activity in some parts of its markets business, such as fixed income, currency and commodities, where revenues were "essentially unchanged," the firm said in a press release.
But net revenue in equities trading soared 72% from the year-ago level.
Goldman also scored higher investment banking fees, citing increases in completed mergers and an elevated level of initial public and secondary equity offerings.
The Wall Street Journal reported on September 28 that Goldman's board had discussed a plan for Solomon to step down as CEO and be replaced with Chief Operating Officer John Waldron around the end of 2027 or in 2028.
A Goldman spokesman said in response that there was no timetable for a transition.
Solomon reiterated that on Tuesday, saying he was "super pleased" with the firm's progress.
Johnson & Johnson
Johnson & Johnson reported a slightly higher-than-expected profit on Tuesday driven by strong sales of immune disease treatment Tremfya, and said it plans to spin off its hips and knees business next year.
The company late last year said it intended to separate its orthopedics unit, DePuy Synthes, into a standalone company, marking its second major spinoff as it sharpens focus on higher-growth healthcare segments.
Chief Financial Officer Joe Wolk on a conference call to discuss company results said J&J remains on track for a mid-2027 separation for DePuy Synthes.
"Given the way DePuy Synthes is performing... we are leaning towards a spin as being the best option to create long-term value for Johnson & Johnson shareholders. That has always been our base plan, and we are confident that it can be successfully executed," he said.
Apollo Global Management is in talks to acquire the orthopedics unit in a deal that could value it at close to $20bn, Bloomberg News reported in September.
J&J shares were off about 2% before the bell.
Wolk, in an interview, told Reuters the Mideast conflict, austerity measures in Europe and pricing in China continued to weigh on results internationally, "but maybe in a little bit more pronounced way."
He said the Mideast conflict, which has led to soaring fuel costs, has yet to impact the company's costs, but has hurt sales in the region.
Medical technology division sales rose 2.5% to $8.6bn overall, missing analysts' estimates of $8.71bn, according to LSEG data. Outside the US, sales in the division were basically flat.
The company raised its full-year forecast for reported sales to about $101.2bn at the midpoint, from $101.1bn previously. It increased its adjusted earnings forecast range with a new midpoint of $11.10 per share, up from $11.04.
The company posted third-quarter revenue of $25.4bn, above estimates of $25.28bn, and adjusted earnings of $2.59 per share, topping Wall Street expectations by 5 cents.
Citigroup
Citigroup beat Wall Street estimates for third-quarter profit on Tuesday, helped by stronger investment banking revenue and transactions with multinational companies as well as higher earnings from wealth management.
Trading profits gained only 2% over a year ago, but fell 27% against the previous quarter, mainly due to a drop in equity trading revenue.
Wall Street banks are navigating a volatile market backdrop as the conflict in Iran pushed oil prices higher, fueling inflation and prompting the US Federal Reserve to raise interest rates and bond markets worldwide to sell off dramatically.
"There is no doubt that high interest rates and the threat of continued Fed hikes is weighing on trading and IB activity in a measurably negative vector," said Brian Mulberry, chief market strategist at Zacks Investment Management.
"However, the ability for Citi to drive positive growth from multiple business units is the strength of the balance sheet today, growth in Services, Wealth, and strong NII will offset short term weakness in trading to support continued ROTCE at or above the targeted 11% going into 2027."
Citi's investment banking revenue increased 9% from a year ago to $1.35bn but fell 13% over the previous quarter as equity and debt underwriting activity slowed. Citi's CFO Gonzalo Luchetti said the bank gained market share over the last year, but also went through the industry slowdown in the third quarter from the record deal volume in the first half of the year.
"I think across the industry, there's a moderate decline from that in terms of the growth rate in the third quarter," Luchetti told reporters during a conference call.
Citigroup posted an 11.5% return on tangible common equity, or ROTCE, in the third quarter and a year-to-date return of 12.6%, ahead of its 11% target.
"We expect to exceed this year's return target, even as we pull forward investments toward our 11-13% near-term goal — the next waypoints on our path to sustainable returns of 14-15%," CEO Jane Fraser said in a statement.
Citi reported a profit of $2.85 per share in the third quarter, compared with analysts' average estimate of $2.66 per share, according to data compiled by LSEG.
The bank said it has returned $4.1bn to shareholders including buybacks and dividends in the third quarter, accumulating share repurchases of $13.3bn this year.
Bank stocks have come under pressure in recent weeks as a sharp rise in bond yields raised concerns that higher borrowing and funding costs could weigh on loan growth and dealmaking.
Global investment banking revenue exceeded $90bn in the first nine months of the year and Citi was placed fifth among global banks by fees during the period, according to Dealogic.
Citi's banking revenue, which includes corporate lending, was up 6%, at $1.74bn. But equity and debt issuance slowed late in the quarter.
