How Is JPMorgan Chase's Business Doing Now?

The S&P 500 might be higher for the year, but the financial sector is still well below its prepandemic levels. Now that we've heard from all of the banks in third-quarter earnings season, Jason Moser and Matt Frankel, CFP, decided to take a closer look at the numbers from JPMorgan Chase (JPM 2.05%) on a recent Fool Live show. Here's what they had to say.

Jason Moser: Let's go ahead and kick it off with JPMorgan. Matt, there's a lot to like about this bank. I think maybe what we like the most about it, I think what I like the most about it, at least, is leadership. I think Jamie Dimon is certainly one of a kind. I want to get your take on this. I don't know about you, but when I was reading through the call, there was so much language in there that just leads me to believe that Jamie Dimon is taking such a broad approach to this point in time, this environment that the banks are dealing with, the pandemic and whatnot. He is taking such a broad approach. JPMorgan is seemingly prepared for any and all outcomes regardless of the scenario. I'm not a shareholder, but if I were, I'd be certainly very encouraged.

But I want to kick it to you in regard to JPMorgan's earnings release, what were one or two things that stood out to you that this bank is doing really well?

Matt Frankel: First, you mentioned what Jamie Dimon said. I remember earlier in the year, a similar point to what you just said, during the height of the pandemic, they said they ran their own stress test. Remember that? Banks are required to run stress tests every year. The Federal Reserve requires it. They ran one that was much more intense than what the Fed requires and still passed with flying colors. Like you said, they are ready for anything.

One thing that stood out to me that Jamie Dimon said this quarter, we've been talking a lot about brokerage consolidation in the past few weeks. He said that JPMorgan Chase is very interested in acquisitions on the asset-management front. I thought that was really interesting. We might see a little more consolidation there.

But just getting to the numbers, JPMorgan Chase, they beat on the top and bottom line, which we don't pay that much attention to headline numbers, but it's interesting to know if the stock moves one way or another, that's usually why. It gives you the big picture of how the business is doing.

But digging it a little bit more important, one reason JPMorgan is the most closely watched bank earnings report, it's not just because it's the biggest, it's because it's the first. Every earnings season, they're the first of the big banks to report. I think probably like an hour. I think Citigroup (C 0.76%) was an hour later. But even so, that's like all eyes on JPMorgan to see how things are going.

Jason Moser: You remember how it used to be based on Alcoa? It wasn't that long ago.

Matt Frankel: I do.

Jason Moser: Alcoa (AA) was what kicked this thing off. Who cares? I hate to throw nothing burger out there, but it just feels like Alcoa's just a big nothing burger these days.

Matt Frankel: I feel like for a long time, they were famous because they kicked off earnings easy.

Jason Moser: I think you're right.

Matt Frankel: But now, it's pretty much JPMorgan Chase. They reported I think 7:00 a.m. on earnings day. I think everyone else that reports that day reports at 8:00.

But anyway, the big thing people were looking at was how bad is the pandemic going to be on banks? The way you've been able to tell that so far was how much they're setting aside to cover loan losses. Between the first and second quarters, for example, JPMorgan Chase set aside $15 billion or so in anticipation of loan losses. Which, if the COVID recession was really worse than expected, that might not have been enough. But it turns out that there was enough. Banks seem to be pumping the brakes on their loan loss reserves. JPMorgan Chase actually released a little bit of reserves this quarter instead of building it up, which is a really, really good sign. They have a pretty big investment banking operation, so they got trading tends that do better when the market's volatile, and that's exactly what we saw here.

Bond trading revenue was up 30% year over year. Their investment banking fee revenue was up double digits. The investment banking aspect of a lot of these banks we're going to talk about, including JPMorgan Chase, really held them up in the face of a poor interest-rate environment. When interest rates are at rock-bottom levels, it's not exactly a great profit model for companies that loan money. But with investment banking, it tends to do better during the hard times and that really helps balance out their second-quarter results in terms of the losses and like interest margin and things like that.

Jason Moser: Is there anything going on that gives you pause or something you feel like investors ought to be keeping their eyes on? This is really one of the best-run banks out there, I think. This is one that I put them in a little bit of a class of their own, but nobody is perfect. There's got to be something out there that we want to be watching.

Matt Frankel: Well, like you said, they're pretty much prepared for anything, but this could be a bad recession if things don't go well. If we don't get stimulus, for example, if the low-interest environment continues to get worse, mortgage rates replenish to one or two percent from the current three percent, that would be a problem. But what you want to keep an eye on really are the macroeconomic factors that they cover in bank profits. How much on unemployment? I want to see how bad it's going to be for banks.

Jason Moser: Sure.

Matt Frankel: The fact that they released some reserves is definitely a good sign, but you don't want to see that reverse course.

Jason Moser: That's a good point.

Matt Frankel: It's really the number to keep an eye on.