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Q3 Earnings, Day 1

13 October 2020 by jbchevrel

Today marked the official start of the Q3-20 earnings season in the US, starting with the traditional JPM beat (across the board). Bank CDS were tighter on the day: JPM CDS 45 (-2.5) Citi CDS 55 (-2). Also catching up with yesterday’s risk-on price action, in fairness. From a macro perspective, it was interesting that JPM has set aside ‘just’ $0.6B of Loan Loss Provisions (LLPs) in Q3, notably less than the market expected and a lot less than in Q2 ($10.5B). Importantly, though. CEO Dimon warned that these strong Q3-20 numbers may represent a temporary blip (due to government stimulus). He said that the future path for LLP and profit will be a function of fiscal policy, calling for continued support. JPM profit doubled from Q2-20 and was up +4% from Q3-19. This was mainly thanks to IBD (+52%) Trading (+30%) and AM/WM (+31%) divisions. Without surprise, Consumer Banking was the weak link. Consumer Banking profit fell -9%. From here, uncertainty remains elevated. So is the gap between the different possible scenario for LLPs, going forward. In the extreme scenario where the US closes the gap, JPM will have a +$10B LLP surplus. In the extreme scenario of a Double-dip Recession, they will face a shortfall of -$20B. Citi displayed similar trends, but under-performed JPM. Citi profit was down -34% YOY due to consumer bank (-30%). Citi also notably slowed their LLP build-up ($2.26B vs $7B+ in H1).