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JPMorgan (JPM) Misses on Q2 Earnings & Revenues, Halts Buyback
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Higher reserve build and decline in investment banking (IB) fees affected JPMorgan’s (JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.
After reporting lower-than-expected earnings, shares of the company are down almost 3% in pre-market trading. Investors are discouraged by JPMorgan’s quarterly performance and suspension of share repurchases and are concerned over the challenging geopolitical and macroeconomic outlook.
As expected by analysts, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees tanked 77% and 53%, respectively. Also, advisory fees were down 28%. Hence, IB fees plunged 54% from the prior-year quarter.
Further, mortgage fees and related income declined 31% to $378 million as mortgage rates reached a 14-year high in June.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expenses target of $77 billion for the year.
During the second quarter, the company reported credit costs of $1.1 billion. CEO Jamie Dimon said in a statement, “But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.”
On the other hand, higher interest rates and a solid rise in loan balance (up 6% year over year) aided the bank’s net interest income (NII). Management now targets NII (excluding CIB Markets NII) to reach approximately $58 billion for 2022. This is up from the prior target of $56 billion (projected during the Investor Day conference in May) and marks a jump of nearly 30% year over year.
Further, as expected, both equity and fixed income markets revenues grew during the quarter. Thus, total markets revenues of $7.8 billion increased 15%.
Among other positives, Asset & Wealth Management average loan balances rose 11% from the year-ago quarter. Likewise, Commercial Banking average loan balances were up 7%.
Debit and credit card sales volume increased 15% year over year, with travel and dining spend remaining solid. Further, card loans were up 16% with persistently robust new account originations.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was dismal. All segments, except Corporate, recorded a fall in net income on a year-over-year basis. Overall, net income declined 28% to $8.6 billion.
Revenues & Costs Rise
Net revenues as reported were $30.7 billion, up 1% year over year. The top line lagged the Zacks Consensus Estimate of $31.7 billion.
Net interest income jumped 19% year over year to $15.2 billion. Non-interest income declined 12% to $16.4 billion, primarily due to lower card fees and IB fees.
Non-interest expenses (on managed basis) were $18.7 billion, up 6%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.1 billion against a net benefit of $2.8 million in the prior-year quarter. This mainly reflected loan growth and a slight deterioration in the economic outlook.
However, net charge-offs fell 10% to $657 million. As of Jun 30, 2022, non-performing assets were $7.8 billion, down 20% from Jun 30, 2021 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 14% at the second quarter-end, down from 15.1% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 12.2%, down from 13%. Total capital ratio was 15.7% (estimated) compared with 17.1% as of Jun 30, 2021.
Book value per share was $86.38 as of Jun 30, 2022, compared with $84.85 in the corresponding period of 2021. Tangible book value per common share was $69.53 at the end of June, up from $68.91.
Share Repurchase Update
During the quarter, JPMorgan repurchased shares worth $224 million.
Further, following the 2022 stress test results and scheduled G-SIB increase, the company has temporarily suspended share buybacks as it tries to shore up capital levels.
Our Viewpoint
New branch openings, strategic acquisitions, a global expansion plan, higher interest rates and decent loan demand are likely to keep supporting JPMorgan’s revenues. However, raging inflation numbers, recessionary fears as well as disappointing IB and mortgage banking performance are major near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Citigroup (C - Free Report) is slated to report second-quarter 2022 results on Jul 15.
Over the past seven days, the Zacks Consensus Estimate for Citigroup’s quarterly earnings has moved 1.8% lower to $1.66. This indicates a 41.6% plunge from the prior-year quarter.
Bank of America (BAC - Free Report) is scheduled to announce second-quarter 2022 numbers on Jul 18.
Over the past week, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 2.5% south to 77 cents, implying a 25.2% decline from the prior-year reported number.
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JPMorgan (JPM) Misses on Q2 Earnings & Revenues, Halts Buyback
Higher reserve build and decline in investment banking (IB) fees affected JPMorgan’s (JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.
After reporting lower-than-expected earnings, shares of the company are down almost 3% in pre-market trading. Investors are discouraged by JPMorgan’s quarterly performance and suspension of share repurchases and are concerned over the challenging geopolitical and macroeconomic outlook.
As expected by analysts, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees tanked 77% and 53%, respectively. Also, advisory fees were down 28%. Hence, IB fees plunged 54% from the prior-year quarter.
Further, mortgage fees and related income declined 31% to $378 million as mortgage rates reached a 14-year high in June.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expenses target of $77 billion for the year.
During the second quarter, the company reported credit costs of $1.1 billion. CEO Jamie Dimon said in a statement, “But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.”
On the other hand, higher interest rates and a solid rise in loan balance (up 6% year over year) aided the bank’s net interest income (NII). Management now targets NII (excluding CIB Markets NII) to reach approximately $58 billion for 2022. This is up from the prior target of $56 billion (projected during the Investor Day conference in May) and marks a jump of nearly 30% year over year.
Further, as expected, both equity and fixed income markets revenues grew during the quarter. Thus, total markets revenues of $7.8 billion increased 15%.
Among other positives, Asset & Wealth Management average loan balances rose 11% from the year-ago quarter. Likewise, Commercial Banking average loan balances were up 7%.
Debit and credit card sales volume increased 15% year over year, with travel and dining spend remaining solid. Further, card loans were up 16% with persistently robust new account originations.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was dismal. All segments, except Corporate, recorded a fall in net income on a year-over-year basis. Overall, net income declined 28% to $8.6 billion.
Revenues & Costs Rise
Net revenues as reported were $30.7 billion, up 1% year over year. The top line lagged the Zacks Consensus Estimate of $31.7 billion.
Net interest income jumped 19% year over year to $15.2 billion. Non-interest income declined 12% to $16.4 billion, primarily due to lower card fees and IB fees.
Non-interest expenses (on managed basis) were $18.7 billion, up 6%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.1 billion against a net benefit of $2.8 million in the prior-year quarter. This mainly reflected loan growth and a slight deterioration in the economic outlook.
However, net charge-offs fell 10% to $657 million. As of Jun 30, 2022, non-performing assets were $7.8 billion, down 20% from Jun 30, 2021 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 14% at the second quarter-end, down from 15.1% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 12.2%, down from 13%. Total capital ratio was 15.7% (estimated) compared with 17.1% as of Jun 30, 2021.
Book value per share was $86.38 as of Jun 30, 2022, compared with $84.85 in the corresponding period of 2021. Tangible book value per common share was $69.53 at the end of June, up from $68.91.
Share Repurchase Update
During the quarter, JPMorgan repurchased shares worth $224 million.
Further, following the 2022 stress test results and scheduled G-SIB increase, the company has temporarily suspended share buybacks as it tries to shore up capital levels.
Our Viewpoint
New branch openings, strategic acquisitions, a global expansion plan, higher interest rates and decent loan demand are likely to keep supporting JPMorgan’s revenues. However, raging inflation numbers, recessionary fears as well as disappointing IB and mortgage banking performance are major 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 #2 (Buy). 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 second-quarter 2022 results on Jul 15.
Over the past seven days, the Zacks Consensus Estimate for Citigroup’s quarterly earnings has moved 1.8% lower to $1.66. This indicates a 41.6% plunge from the prior-year quarter.
Bank of America (BAC - Free Report) is scheduled to announce second-quarter 2022 numbers on Jul 18.
Over the past week, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 2.5% south to 77 cents, implying a 25.2% decline from the prior-year reported number.