JPMorgan’s corporate and investment bank surged by 30% in the third quarter, as a bumper three months for its dealmakers and stock traders helped offset a slump in fixed income revenues.
The US banking giant kicked off a third-quarter earnings season for Wall Street lenders by beating analyst expectations, with soaring M&A and equity capital markets activity driving its corporate and investment bank to a $5.6bn profit — up by 29% on the same period in 2020.
Overall net profit at the bank of $11.7bn were ahead of analysts expectations of $9bn, an increase of 28% on the third quarter of 2020, as it reaped the benefit of a $2.1bn gain from money put aside for potential loan losses last year. Revenue was $29.6bn, which were largely in line with consensus.
JPMorgan’s investment banking fees surged by 52% on the same period last year to $3.3bn, as dealmaking revenue hit all time highs this year. However, this number is slightly down on its record second quarter.
JPMorgan’s M&A revenues hit a record $1.2bn in the third quarter, nearly three times the same period last year, meaning its dealmakers eclipsed fees brought in its traditionally more lucrative debt capital markets unit.
Daniel Pinto, chief executive of JPMorgan’s corporate and investment bank, said the revenues were all the more impressive as dealmakers have been adjusting to new working patterns during the pandemic.
“The volume of client activity cited in our earnings translates to a tremendous amount of work being done across the entire organization, and we’re accomplishing it all while adjusting to new ways of working,” he told staff in a memo seen by Financial News.
The US bank still tops the investment banking league tables amid a deal boom that has brought in $93bn in revenues across the sector during the first nine months of 2021, according to data provider Dealogic. JPMorgan has 9.5% of the fee pool so far in 2021, and revenues have increased to $9.2bn, an rise of 39% on the same period last year.
Banks have hauled in $29.7bn in M&A fees so far in 2021 — a record at this point in the year — as deals have surged in the wake of the pandemic. Equity capital markets activity, particularly initial public offerings and special purpose acquisition companies — which smashed records in the first half of the year — have increased to $27.9bn, according to Dealogic.
Jamie Dimon, chief executive of JPMorgan, said in a statement that the increase in banking fees was driven by a “surge in M&A activity and our strong performance in IPOs”.
In a hot market for banker recruitment, JPMorgan has been hiring, with headcount in its corporate and investment bank increasing by over 4,000 people compared to the third quarter of 2020 to 66,267. Compensation costs in the unit have increased by 11% to $10.7bn so far in 2021.
JPMorgan’s chief financial officer said during its third quarter earnings calls that compensation costs had increased as the bank “pays for performance” over the past two years in banking and markets divisions.
But the strong performance in its investment banking division was offset by weakening trading revenues. Banks’ markets divisions have been on a charge throughout the pandemic, helping to offset tumbling revenues within consumer and commercial divisions weighed down by loan loss provisions last year. However, fixed income revenues are expected to fall by 20% during the third quarter across the sector, according to Deutsche Bank analysts.
Marianne Lake, JPMorgan’s former chief financial officer who now co-heads its consumer business flagged a steeper revenue loss in its trading business, telling an industry conference in September that revenue was set to fall by 10%, largely as a result of its fixed income unit.
The stock trading unit was up by 30% to $2.6bn, meaning overall markets revenue only fell 5% compared to a year earlier. JPMorgan’s fixed income revenue dropped by 20% to $3.7bn, which was in line with market expectations.
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