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Rates, Trading to Aid JPMorgan (JPM) Q1 Earnings, IB to Hurt
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JPMorgan (JPM - Free Report) , scheduled to kick start first-quarter 2023 earnings with other major industry players this Friday, Apr 14, is likely to have benefited from higher interest rates. A decent lending scenario is also expected to have supported the company’s net interest income (NII).
The Federal Reserve continued tightening its monetary policy (though the pace has slowed down), raising the interest rates by another 50 basis points during the quarter. Thus, the policy rate reached 4.75-5%, the highest since 2008. This is likely to have had a favorable impact on JPM’s net interest margin (NIM) and NII. Nonetheless, the inversion of the yield curve in the March-ended quarter is expected to have weighed on NIM to some extent.
Lending activities also continued at a decent pace in the to-be-reported quarter. Per the Fed’s latest data, demand for real estate loans and consumer loans (specifically credit cards) improved in January and February, while commercial and industrial loans witnessed muted demand. However, following the bank runs in the first week of March, demand for loans is likely to have decelerated as recessionary fear gained ground.
The Zacks Consensus Estimate for JPM’s average earning assets is pegged at $3.23 trillion, indicating a 4.8% fall on a year-over-year basis. Our estimate for the metric is $3.36 trillion, indicating a 1.1% decline.
The Zacks Consensus Estimate for NII (FTE) of $19.45 billion suggests a 39.2% surge. Our estimate for NII implies a jump of 45.7% to $20.35 billion.
Other Major Factors at Play
Markets Revenues: Similar to 2022, market volatility and client activity remained robust during the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation led to ambiguity among investors.
These factors led to heightened volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, JPMorgan is likely to have recorded a decent improvement in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Yet, it will be difficult to compare with last year's quarter numbers, which were a record. The consensus estimate for equity markets revenues of $2.65 billion suggests a 13.2% fall. Also, the Zacks Consensus Estimate for fixed-income markets revenues of $5.43 billion indicates a 4.8% decline.
Our estimates for equity markets revenues and fixed income markets revenues are $2.71 billion and $4.87 billion, respectively.
Investment Banking (IB) Fees: Like 2022, global deal-making continued to shrink in the first quarter. A host of factors like geopolitical tensions, inflation, rising interest rates and fears of a global recession acted as headwinds for M&As.
Thus, both deal volume and total value numbers crashed during the first quarter. Also, JPMorgan’s leadership in the space is less likely to have offered support to advisory fees.
For the same reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. So, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been hurt during the March-ended quarter.
The consensus estimate for investment banking revenues of 1.67 billion implies a 19% decrease. Our estimate for the metric suggests a 17.2% decline.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to decline in the first quarter. Mortgage banking revenues have been facing tough comps from the prior year, which was boosted by low mortgage rates.
Also, in the first quarter, mortgage rates continued to increase, with the rate on the 30-year fixed mortgage reaching 6.32% in March, up from around 3% in the prior-year quarter. The climb in mortgage rates, which kept the home buyers on the sidelines, led to a smaller origination market. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $155 million reflects a plunge of 66.3% from the prior-year quarter's reported number. Our estimate for the metric is $198.3 million, indicating a 56.9% fall.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses during the first quarter. Also, investment in technology to strengthen digital offerings might have led to a rise in costs.
Our estimate for non-interest expenses stands at $20.22 billion, reflecting an increase of 5.3% on a year-over-year basis.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, JPMorgan is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $2.36 billion, marking a jump of 61.5% year over year.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.79 billion implies a 12.5% decline year over year. The consensus estimate for non-performing assets (NPAs) of $7.47 suggests a 13.1% fall. Our estimates for NPAs and NPLs are $8.4 billion and $7.63 billion, respectively.
What the Zacks Model Unveils
Our proven model doesn’t predict an earnings beat for JPMorgan this time around. This is because it does not have the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -0.77%.
The Zacks Consensus Estimate for first-quarter earnings has been revised almost 1% lower to $3.40 over the past seven days. The estimated number reflects a jump of 29.3% from the year-ago reported number. Our estimate for earnings is $3.01.
Also, the consensus estimate for sales of $35.37 billion suggests a 15.2% year-over-year rise. Our estimate for sales is $33.67 billion, up 9.6%.
Banks Worth a Look
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Truist Financial (TFC - Free Report) is +0.59% and it carries a Zacks Rank #3, at present. The company is slated to report first-quarter 2023 results on Apr 20.
Over the past seven days, the Zacks Consensus Estimate for TFC’s quarterly earnings has moved 1.7% lower.
Image: Bigstock
Rates, Trading to Aid JPMorgan (JPM) Q1 Earnings, IB to Hurt
JPMorgan (JPM - Free Report) , scheduled to kick start first-quarter 2023 earnings with other major industry players this Friday, Apr 14, is likely to have benefited from higher interest rates. A decent lending scenario is also expected to have supported the company’s net interest income (NII).
The Federal Reserve continued tightening its monetary policy (though the pace has slowed down), raising the interest rates by another 50 basis points during the quarter. Thus, the policy rate reached 4.75-5%, the highest since 2008. This is likely to have had a favorable impact on JPM’s net interest margin (NIM) and NII. Nonetheless, the inversion of the yield curve in the March-ended quarter is expected to have weighed on NIM to some extent.
Lending activities also continued at a decent pace in the to-be-reported quarter. Per the Fed’s latest data, demand for real estate loans and consumer loans (specifically credit cards) improved in January and February, while commercial and industrial loans witnessed muted demand. However, following the bank runs in the first week of March, demand for loans is likely to have decelerated as recessionary fear gained ground.
The Zacks Consensus Estimate for JPM’s average earning assets is pegged at $3.23 trillion, indicating a 4.8% fall on a year-over-year basis. Our estimate for the metric is $3.36 trillion, indicating a 1.1% decline.
The Zacks Consensus Estimate for NII (FTE) of $19.45 billion suggests a 39.2% surge. Our estimate for NII implies a jump of 45.7% to $20.35 billion.
Other Major Factors at Play
Markets Revenues: Similar to 2022, market volatility and client activity remained robust during the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation led to ambiguity among investors.
These factors led to heightened volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, JPMorgan is likely to have recorded a decent improvement in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Yet, it will be difficult to compare with last year's quarter numbers, which were a record. The consensus estimate for equity markets revenues of $2.65 billion suggests a 13.2% fall. Also, the Zacks Consensus Estimate for fixed-income markets revenues of $5.43 billion indicates a 4.8% decline.
Our estimates for equity markets revenues and fixed income markets revenues are $2.71 billion and $4.87 billion, respectively.
Investment Banking (IB) Fees: Like 2022, global deal-making continued to shrink in the first quarter. A host of factors like geopolitical tensions, inflation, rising interest rates and fears of a global recession acted as headwinds for M&As.
Thus, both deal volume and total value numbers crashed during the first quarter. Also, JPMorgan’s leadership in the space is less likely to have offered support to advisory fees.
For the same reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. So, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been hurt during the March-ended quarter.
The consensus estimate for investment banking revenues of 1.67 billion implies a 19% decrease. Our estimate for the metric suggests a 17.2% decline.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to decline in the first quarter. Mortgage banking revenues have been facing tough comps from the prior year, which was boosted by low mortgage rates.
Also, in the first quarter, mortgage rates continued to increase, with the rate on the 30-year fixed mortgage reaching 6.32% in March, up from around 3% in the prior-year quarter. The climb in mortgage rates, which kept the home buyers on the sidelines, led to a smaller origination market. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $155 million reflects a plunge of 66.3% from the prior-year quarter's reported number. Our estimate for the metric is $198.3 million, indicating a 56.9% fall.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses during the first quarter. Also, investment in technology to strengthen digital offerings might have led to a rise in costs.
Our estimate for non-interest expenses stands at $20.22 billion, reflecting an increase of 5.3% on a year-over-year basis.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, JPMorgan is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $2.36 billion, marking a jump of 61.5% year over year.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.79 billion implies a 12.5% decline year over year. The consensus estimate for non-performing assets (NPAs) of $7.47 suggests a 13.1% fall. Our estimates for NPAs and NPLs are $8.4 billion and $7.63 billion, respectively.
What the Zacks Model Unveils
Our proven model doesn’t predict an earnings beat for JPMorgan this time around. This is because it does not have the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -0.77%.
Zacks Rank: It currently carries a Zacks Rank #3.
JPMorgan Chase & Co. Price and EPS Surprise
JPMorgan Chase & Co. price-eps-surprise | JPMorgan Chase & Co. Quote
The Zacks Consensus Estimate for first-quarter earnings has been revised almost 1% lower to $3.40 over the past seven days. The estimated number reflects a jump of 29.3% from the year-ago reported number. Our estimate for earnings is $3.01.
Also, the consensus estimate for sales of $35.37 billion suggests a 15.2% year-over-year rise. Our estimate for sales is $33.67 billion, up 9.6%.
Banks Worth a Look
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Truist Financial (TFC - Free Report) is +0.59% and it carries a Zacks Rank #3, at present. The company is slated to report first-quarter 2023 results on Apr 20.
Over the past seven days, the Zacks Consensus Estimate for TFC’s quarterly earnings has moved 1.7% lower.
Comerica (CMA - Free Report) is also scheduled to release first-quarter 2023 earnings on Apr 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.16%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CMA’s quarterly earnings estimates have moved marginally lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.