JPMorgan Chase & Co. was the first of the major banks to report third quarter earnings. Its results released Wednesday morning beat expectations, with a profit of $1.01 per share versus 90 cents per share expected. Although its profit is down by $377 million or 8% compared to the second quarter, it's up $830 million or 23% compared to a year earlier. What can we learn about general trends in banking from the results?
It helps to start by looking at the bank's various lines of business. Here are two charts. The first shows how the net income of those lines have moved over the past year. The second shows net income changes compared to a quarter ago and a year ago:
Let's consider a few of these lines of business.
Investment banking made a huge rebound last year. The growth continued through the first quarter of 2010, but then began to decline. Principal transactions revenue is down 58% or $1.6 billion year-over-year. The fall over the past few quarters is primarily due to less trading revenue. You can expect to see all big banks with a significant Wall Street presence suffer form the trading slowdown.
Retail Financial Services
JPMorgan's retail bank has been doing relatively well over the past few quarters. This is mostly due to fewer credit losses in products like mortgages. The bank's provision for credit losses has declined by a whopping 61% or $2.4 billion year-over-year. This means banks with a stronger retail presence should fare relatively well in the third quarter.