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JPMorgan (JPM) Q1 Earnings Miss on Reserve Build, Stalled M&A
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Lower markets revenues, reserve build and decline in investment banking (IB) fees affected JPMorgan’s (JPM - Free Report) first-quarter 2022 earnings of $2.63 per share, which missed the Zacks Consensus Estimate of $2.73. The reported quarter’s results included net credit reserve build and losses in Credit Adjustments & Other.
After reporting lower-than-expected earnings, shares of the company are down almost 3.5% in pre-market trading. Investors are disappointed with the performance of JPMorgan’s capital markets business and concerned over the tough geopolitical and economic backdrop.
Equity markets revenues and fixed income markets revenues fell 7% and 1%, respectively, on a year-over-year basis. Thus, total markets revenues of $8.8 billion declined 3%. This is lower than management’s expectation of a 10% decrease for the quarter.
As expected by analysts, the performance of IB business was disappointing. Equity and debt underwriting fees tanked 78% and 20%, respectively. On the other hand, advisory fees were a saving grace, rising 18%. Yet, IB fees decreased 31% from the prior-year quarter.
Also, mortgage fees and related income plunged 35% to $460 million. During the quarter, operating expenses recorded an increase. Management reiterated the adjusted non-interest expenses target of $77 billion for the year.
During the first quarter, the company reported net credit reserve build of $902 million, given the “higher probabilities of downside risks.” The CEO Jamie Dimon said in a statement, “We remain optimistic on the economy, at least for the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine.”
While relatively lower rates continued to hurt the bank’s interest income, it was more than offset by a rise in loan balance (up 6% year over year). Further, Commercial Banking average loan balances were up 2% year over year.
Among other positives, Asset & Wealth Management average loan balances grew 14% from the year-ago quarter. Debit and credit card sales volume increased 21%, reflecting the steadily improving consumer confidence and economic outlook.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was disappointing. All segments recorded a decrease in net income on a year-over-year basis. So, net income plunged 42% from the prior-year quarter to $8.3 billion.
Revenues Down, Costs Rise
Net revenues as reported were $30.7 billion, down 5% year over year. The top line beat the Zacks Consensus Estimate of $30.5 billion.
Net interest income grew 8% year over year to $13.9 billion.
Non-interest income declined 13% to $16.8 billion, primarily due to a fall in mortgage banking and related fees, card fees, IB fees and principal transactions.
Non-interest expenses (on managed basis) were $19.2 billion, up 2%. This upswing was mainly due to a rise in compensation expenses and marketing costs.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.5 billion against a net benefit of $4.2 million in the prior-year quarter. However, net charge-offs plunged 45% to $582 million.
As of Mar 31, 2022, non-performing assets were $8.6 billion, down 16% from Mar 31, 2021 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 13.7% at the first quarter-end, down from 15% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 11.9%, down from 13.1%. Total capital ratio was 15.4% (estimated) compared with 17.2% as of Mar 31, 2021.
Book value per share was $86.16 as of Mar 31, 2022, compared with $82.31 in the corresponding period of 2021. Tangible book value per common share was $69.58 at the end of March, up from $66.56.
Share Repurchase Update
During the quarter, JPMorgan repurchased shares worth $1.7 billion.
The company authorized a new share buyback plan worth $30 billion, effective from May 1, 2022.
Our Take
New branch openings, strategic acquisitions, global expansion plan and solid loan demand are likely to continue supporting JPMorgan’s revenues. However, relatively lower rates, raging inflation numbers, and disappointing trading, IB and mortgage banking performance are near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Citigroup (C - Free Report) is slated to report first-quarter 2022 results on Apr 14.
Over the past 30 days, the Zacks Consensus Estimate for Citigroup’s quarterly earnings has moved 14.4% lower to $1.72. This indicates a 52.5% plunge from the prior-year quarter.
Bank of America (BAC - Free Report) is scheduled to announce first-quarter 2022 numbers on Apr 18.
Over the past 30 days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.3% south to 77 cents, implying a 10.5% decline from the prior-year reported number.
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JPMorgan (JPM) Q1 Earnings Miss on Reserve Build, Stalled M&A
Lower markets revenues, reserve build and decline in investment banking (IB) fees affected JPMorgan’s (JPM - Free Report) first-quarter 2022 earnings of $2.63 per share, which missed the Zacks Consensus Estimate of $2.73. The reported quarter’s results included net credit reserve build and losses in Credit Adjustments & Other.
After reporting lower-than-expected earnings, shares of the company are down almost 3.5% in pre-market trading. Investors are disappointed with the performance of JPMorgan’s capital markets business and concerned over the tough geopolitical and economic backdrop.
Equity markets revenues and fixed income markets revenues fell 7% and 1%, respectively, on a year-over-year basis. Thus, total markets revenues of $8.8 billion declined 3%. This is lower than management’s expectation of a 10% decrease for the quarter.
As expected by analysts, the performance of IB business was disappointing. Equity and debt underwriting fees tanked 78% and 20%, respectively. On the other hand, advisory fees were a saving grace, rising 18%. Yet, IB fees decreased 31% from the prior-year quarter.
Also, mortgage fees and related income plunged 35% to $460 million. During the quarter, operating expenses recorded an increase. Management reiterated the adjusted non-interest expenses target of $77 billion for the year.
During the first quarter, the company reported net credit reserve build of $902 million, given the “higher probabilities of downside risks.” The CEO Jamie Dimon said in a statement, “We remain optimistic on the economy, at least for the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine.”
While relatively lower rates continued to hurt the bank’s interest income, it was more than offset by a rise in loan balance (up 6% year over year). Further, Commercial Banking average loan balances were up 2% year over year.
Among other positives, Asset & Wealth Management average loan balances grew 14% from the year-ago quarter. Debit and credit card sales volume increased 21%, reflecting the steadily improving consumer confidence and economic outlook.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was disappointing. All segments recorded a decrease in net income on a year-over-year basis. So, net income plunged 42% from the prior-year quarter to $8.3 billion.
Revenues Down, Costs Rise
Net revenues as reported were $30.7 billion, down 5% year over year. The top line beat the Zacks Consensus Estimate of $30.5 billion.
Net interest income grew 8% year over year to $13.9 billion.
Non-interest income declined 13% to $16.8 billion, primarily due to a fall in mortgage banking and related fees, card fees, IB fees and principal transactions.
Non-interest expenses (on managed basis) were $19.2 billion, up 2%. This upswing was mainly due to a rise in compensation expenses and marketing costs.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.5 billion against a net benefit of $4.2 million in the prior-year quarter. However, net charge-offs plunged 45% to $582 million.
As of Mar 31, 2022, non-performing assets were $8.6 billion, down 16% from Mar 31, 2021 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 13.7% at the first quarter-end, down from 15% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 11.9%, down from 13.1%. Total capital ratio was 15.4% (estimated) compared with 17.2% as of Mar 31, 2021.
Book value per share was $86.16 as of Mar 31, 2022, compared with $82.31 in the corresponding period of 2021. Tangible book value per common share was $69.58 at the end of March, up from $66.56.
Share Repurchase Update
During the quarter, JPMorgan repurchased shares worth $1.7 billion.
The company authorized a new share buyback plan worth $30 billion, effective from May 1, 2022.
Our Take
New branch openings, strategic acquisitions, global expansion plan and solid loan demand are likely to continue supporting JPMorgan’s revenues. However, relatively lower rates, raging inflation numbers, and disappointing trading, IB and mortgage banking performance are near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
JPMorgan Chase & Co. price-consensus-eps-surprise-chart | JPMorgan Chase & Co. Quote
JPMorgan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates & Expectations of Other Big Banks
Citigroup (C - Free Report) is slated to report first-quarter 2022 results on Apr 14.
Over the past 30 days, the Zacks Consensus Estimate for Citigroup’s quarterly earnings has moved 14.4% lower to $1.72. This indicates a 52.5% plunge from the prior-year quarter.
Bank of America (BAC - Free Report) is scheduled to announce first-quarter 2022 numbers on Apr 18.
Over the past 30 days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.3% south to 77 cents, implying a 10.5% decline from the prior-year reported number.