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Trading, Loans, Higher Rates to Aid JPMorgan (JPM) Q2 Earnings
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After witnessing the gradual normalization of trading activities since the second half of 2021, the same is expected to have been a bright spot for JPMorgan (JPM - Free Report) in the second quarter of 2022 as well. Thus, markets revenues (comprising nearly 20% of the company’s total revenues) might have offered some support to its earnings, slated to be announced on Jul 14, before the opening bell.
The developments of the first quarter of 2022, including Russia’s invasion of Ukraine continued to disrupt supply chains and lead to ambiguity across the globe. This resulted in huge market volatilities in the second quarter. Also, fears of an economic slowdown, high inflation and rising interest rates globally led to an increase in client activity and trading volume during the second quarter.
These factors have led to a heightened volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded a significant improvement in market revenues this time.
JPM’s market revenues are accounted for in the Corporate & Investment Bank segment. The Zacks Consensus Estimate for the segment’s total net revenues of $12.3 billion indicates a fall of 6.5% from the prior-year level.
Other Key Factors
Loan Demand & Net Interest Income (NII): Lending activities continued to improve in the to-be-reported quarter. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans accelerated in April and May.
The Zacks Consensus Estimate for JPM’s average earning assets is pegged at $3.42 trillion, suggesting a 7.8% rise on a year-over-year basis.
Further, the Federal Reserve raised interest rates by 125 basis points during the quarter. Thus, the policy rate reached 1.5-1.75%, the highest level since just before the March 2020 pandemic. Thus, this is likely to have had a favorable impact on JPM’s net interest margin (NIM) and NII. However, the flattening of the yield curve in the June-ended quarter is expected to have weighed on NIM to some extent.
The Zacks Consensus Estimate for NII of $15 billion suggests a 17.6% jump.
Investment Banking (IB) Fees: After an extraordinary performance for almost two years, deal-making across the globe hit a purple patch. Raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value numbers crashed during the second quarter. Also, JPMorgan’s leadership in the space is less likely to have offered much support to advisory fees.
Given similar reasons, the IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline too. Hence, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been hurt during the June quarter.
The Zacks Consensus Estimate for IB fees of $2.04 billion indicates a 41.2% plunge from the prior-year quarter's reported number.
Mortgage Banking Fees: Since the beginning of the year, there have been heightened speculations that the Fed will aggressively raise rates as it has happened. This resulted in a substantial rise in mortgage rates during the second quarter, with home loan interest rates hitting a 14-year high in June.
Thus, mortgage origination and refinancing activities decreased drastically. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $412 million reflects a decline of 25.2% from the prior-year quarter's reported number.
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 second quarter.
Also, investment in technology to strengthen digital offerings might have led to a rise in costs in the to-be-reported quarter.
Asset Quality: With the rise in loan balance and expectations of economic slowdown due to geopolitical and macroeconomic concerns, JPMorgan is expected to have built reserves in the second quarter.
The Zacks Consensus Estimate for non-performing assets of $8.06 billion implies a 17.8% decline year over year. The consensus estimate for non-performing loans of $7.11 suggests a 21.6% fall.
What the Zacks Model Unveils
Our proven model predicts an earnings beat for JPMorgan this time around. This is because it has the right combination of the two key ingredients — a 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 +1.32%.
Zacks Rank: It currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for second-quarter earnings has been revised 1.1% upward to $2.87 over the past 30 days. Yet, the estimated number reflects a decline of 24.1% from the year-ago reported number.
On the other hand, the consensus estimate for sales of $31.67 billion suggests a 3.9% year-over-year rise.
Other Banks Worth a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Truist Financial (TFC - Free Report) is +1.38% and it carries a Zacks Rank #3, at present. The company is slated to report second-quarter 2022 results on Jul 19.
Over the past 30 days, TFC’s Zacks Consensus Estimate for quarterly earnings has remained unchanged.
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Trading, Loans, Higher Rates to Aid JPMorgan (JPM) Q2 Earnings
After witnessing the gradual normalization of trading activities since the second half of 2021, the same is expected to have been a bright spot for JPMorgan (JPM - Free Report) in the second quarter of 2022 as well. Thus, markets revenues (comprising nearly 20% of the company’s total revenues) might have offered some support to its earnings, slated to be announced on Jul 14, before the opening bell.
The developments of the first quarter of 2022, including Russia’s invasion of Ukraine continued to disrupt supply chains and lead to ambiguity across the globe. This resulted in huge market volatilities in the second quarter. Also, fears of an economic slowdown, high inflation and rising interest rates globally led to an increase in client activity and trading volume during the second quarter.
These factors have led to a heightened volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded a significant improvement in market revenues this time.
JPM’s market revenues are accounted for in the Corporate & Investment Bank segment. The Zacks Consensus Estimate for the segment’s total net revenues of $12.3 billion indicates a fall of 6.5% from the prior-year level.
Other Key Factors
Loan Demand & Net Interest Income (NII): Lending activities continued to improve in the to-be-reported quarter. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans accelerated in April and May.
The Zacks Consensus Estimate for JPM’s average earning assets is pegged at $3.42 trillion, suggesting a 7.8% rise on a year-over-year basis.
Further, the Federal Reserve raised interest rates by 125 basis points during the quarter. Thus, the policy rate reached 1.5-1.75%, the highest level since just before the March 2020 pandemic. Thus, this is likely to have had a favorable impact on JPM’s net interest margin (NIM) and NII. However, the flattening of the yield curve in the June-ended quarter is expected to have weighed on NIM to some extent.
The Zacks Consensus Estimate for NII of $15 billion suggests a 17.6% jump.
Investment Banking (IB) Fees: After an extraordinary performance for almost two years, deal-making across the globe hit a purple patch. Raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value numbers crashed during the second quarter. Also, JPMorgan’s leadership in the space is less likely to have offered much support to advisory fees.
Given similar reasons, the IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline too. Hence, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been hurt during the June quarter.
The Zacks Consensus Estimate for IB fees of $2.04 billion indicates a 41.2% plunge from the prior-year quarter's reported number.
Mortgage Banking Fees: Since the beginning of the year, there have been heightened speculations that the Fed will aggressively raise rates as it has happened. This resulted in a substantial rise in mortgage rates during the second quarter, with home loan interest rates hitting a 14-year high in June.
Thus, mortgage origination and refinancing activities decreased drastically. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $412 million reflects a decline of 25.2% from the prior-year quarter's reported number.
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 second quarter.
Also, investment in technology to strengthen digital offerings might have led to a rise in costs in the to-be-reported quarter.
Asset Quality: With the rise in loan balance and expectations of economic slowdown due to geopolitical and macroeconomic concerns, JPMorgan is expected to have built reserves in the second quarter.
The Zacks Consensus Estimate for non-performing assets of $8.06 billion implies a 17.8% decline year over year. The consensus estimate for non-performing loans of $7.11 suggests a 21.6% fall.
What the Zacks Model Unveils
Our proven model predicts an earnings beat for JPMorgan this time around. This is because it has the right combination of the two key ingredients — a 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 +1.32%.
Zacks Rank: It currently carries a Zacks Rank #2 (Buy).
JPMorgan Chase & Co. Price and EPS Surprise
JPMorgan Chase & Co. price-eps-surprise | JPMorgan Chase & Co. Quote
The Zacks Consensus Estimate for second-quarter earnings has been revised 1.1% upward to $2.87 over the past 30 days. Yet, the estimated number reflects a decline of 24.1% from the year-ago reported number.
On the other hand, the consensus estimate for sales of $31.67 billion suggests a 3.9% year-over-year rise.
Other Banks Worth a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Truist Financial (TFC - Free Report) is +1.38% and it carries a Zacks Rank #3, at present. The company is slated to report second-quarter 2022 results on Jul 19.
Over the past 30 days, TFC’s Zacks Consensus Estimate for quarterly earnings has remained unchanged.
Associated Banc-Corp (ASB - Free Report) is scheduled to release second-quarter 2022 earnings on Jul 21. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.14%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ASB’s quarterly earnings estimates have remained stable over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.