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Higher Rates, Loans, Trading to Aid JPMorgan (JPM) Q4 Earnings
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JPMorgan (JPM - Free Report) , slated to kick start fourth-quarter 2022 earnings with other major industry players this Friday, Jan 13, is likely to have benefited immensely 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 with its ultra-hawkish monetary policy stance, raising the interest rates by another 125 basis points during the quarter. Thus, the policy rate reached 4.25-4.50%, the highest in the past 15 years. 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 December-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 commercial and industrial loans, real estate loans and consumer loans (specifically credit cards) accelerated in October and November.
The Zacks Consensus Estimate for JPM’s average earning assets is pegged at $3.37 trillion, suggesting an almost 1% rise on a year-over-year basis. Our estimate for the metric is $3.12 trillion, indicating a 5.2% improvement.
The Zacks Consensus Estimate for NII of $19.12 billion suggests a 42.4% surge. Our estimate for NII implies a jump of 38.1% to $18.93 billion.
For the fourth quarter, management expects NII to be approximately $19 billion, implying a full-year 2022 number of nearly $66 billion. Further, management anticipates NII (excluding Markets) to be about $19 billion in the fourth quarter, implying that Markets NII will be around zero. This brings NII (excluding Markets) to about $61.5 billion for 2022.
Management projects high-single-digit loan growth (excluding CIB Markets & PPP) for 2022. We expect loans to rise 7.6% on a year-over-year basis.
Other Major Factors at Play
Markets Revenues: Similar to the first three quarters of 2022, market volatility and client activity remained robust during the fourth quarter. The developments, including Russia’s invasion of Ukraine and continued supply chain disruptions, led to ambiguity among investors. Also, the ultra-aggressive stance of the central banks across the globe to control inflation and resultant fears of an economic downturn/recession drove client activity and trading volume.
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.
Notably, during an investors conference in early December 2022, the company Co-CEO-Consumer & Community Banking, Marianne Lake, stated that markets revenues are expected to be up almost 10% year over year for the fourth quarter.
The consensus estimate for equity markets revenues of $1.93 billion suggests a 1.4% fall. On the other hand, the Zacks Consensus Estimate for fixed income markets revenues of $4.92 billion indicates a 47.5% jump.
Investment Banking (IB) Fees: After an extraordinary performance in 2021 and similar to the first three quarters of 2022, global deal-making continued to shrink in the fourth quarter. A host of factors like geopolitical tensions, sky-high 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 fourth 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 December-ended quarter.
Management expects IB fees to be down in the fourth quarter compared with “a very strong prior year” despite having a healthy pipeline. We expect the same to be $1.83 billion, reflecting a sharp decline of 47.7%.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to decline in the fourth quarter. Mortgage banking revenues have been facing tough comps from the prior year, which was boosted by low mortgage rates.
Also, in the fourth quarter, mortgage rates continued to increase, with the rate on the 30-year fixed mortgage remaining above the 6% mark throughout the period. 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 $285 million reflects a decline of 9.5% from the prior-year quarter's reported number. Our estimate for the metric is $286.9 million, indicating an 8.9% 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 fourth 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 $19.21 billion, reflecting an increase of 7.4% on a year-over-year basis.
For 2022, management expects expenses to be around $77 billion, up 8% year over year.
Asset Quality: With the rise in loan balance and global recession risk due to geopolitical and macroeconomic concerns, JPMorgan is expected to have built reserves in the fourth quarter. Our estimate for provision for credit losses is pegged at $1.79 billion against a provision benefit of $1.29 billion a year ago.
The Zacks Consensus Estimate for non-performing assets (NPAs) of $7.3 billion implies a 12.6% decline year over year. The consensus estimate for non-performing loans (NPLs) of $6.48 suggests a 16.8% fall. Our estimates for NPAs and NPLs are $7.39 billion and $6.55 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 -3.22%.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.6% lower to $3.12 over the past seven days. The estimated number reflects a decline of 6.3% from the year-ago reported number. Our estimate for earnings is $2.98.
On the other hand, the consensus estimate for sales of $33.94 billion suggests a 16% year-over-year rise. Our estimate for sales is $32.11 billion, up 9.8%.
Banks Worth a Look
Here are a couple of 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 The Bank of New York Mellon Corporation (BK - Free Report) is +6.31% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full year 2022 results on Jan 13.
Over the past seven days, BK’s Zacks Consensus Estimate for quarterly earnings has moved 3.5% north.
Image: Bigstock
Higher Rates, Loans, Trading to Aid JPMorgan (JPM) Q4 Earnings
JPMorgan (JPM - Free Report) , slated to kick start fourth-quarter 2022 earnings with other major industry players this Friday, Jan 13, is likely to have benefited immensely 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 with its ultra-hawkish monetary policy stance, raising the interest rates by another 125 basis points during the quarter. Thus, the policy rate reached 4.25-4.50%, the highest in the past 15 years. 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 December-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 commercial and industrial loans, real estate loans and consumer loans (specifically credit cards) accelerated in October and November.
The Zacks Consensus Estimate for JPM’s average earning assets is pegged at $3.37 trillion, suggesting an almost 1% rise on a year-over-year basis. Our estimate for the metric is $3.12 trillion, indicating a 5.2% improvement.
The Zacks Consensus Estimate for NII of $19.12 billion suggests a 42.4% surge. Our estimate for NII implies a jump of 38.1% to $18.93 billion.
For the fourth quarter, management expects NII to be approximately $19 billion, implying a full-year 2022 number of nearly $66 billion. Further, management anticipates NII (excluding Markets) to be about $19 billion in the fourth quarter, implying that Markets NII will be around zero. This brings NII (excluding Markets) to about $61.5 billion for 2022.
Management projects high-single-digit loan growth (excluding CIB Markets & PPP) for 2022. We expect loans to rise 7.6% on a year-over-year basis.
Other Major Factors at Play
Markets Revenues: Similar to the first three quarters of 2022, market volatility and client activity remained robust during the fourth quarter. The developments, including Russia’s invasion of Ukraine and continued supply chain disruptions, led to ambiguity among investors. Also, the ultra-aggressive stance of the central banks across the globe to control inflation and resultant fears of an economic downturn/recession drove client activity and trading volume.
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.
Notably, during an investors conference in early December 2022, the company Co-CEO-Consumer & Community Banking, Marianne Lake, stated that markets revenues are expected to be up almost 10% year over year for the fourth quarter.
The consensus estimate for equity markets revenues of $1.93 billion suggests a 1.4% fall. On the other hand, the Zacks Consensus Estimate for fixed income markets revenues of $4.92 billion indicates a 47.5% jump.
Investment Banking (IB) Fees: After an extraordinary performance in 2021 and similar to the first three quarters of 2022, global deal-making continued to shrink in the fourth quarter. A host of factors like geopolitical tensions, sky-high 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 fourth 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 December-ended quarter.
Management expects IB fees to be down in the fourth quarter compared with “a very strong prior year” despite having a healthy pipeline. We expect the same to be $1.83 billion, reflecting a sharp decline of 47.7%.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to decline in the fourth quarter. Mortgage banking revenues have been facing tough comps from the prior year, which was boosted by low mortgage rates.
Also, in the fourth quarter, mortgage rates continued to increase, with the rate on the 30-year fixed mortgage remaining above the 6% mark throughout the period. 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 $285 million reflects a decline of 9.5% from the prior-year quarter's reported number. Our estimate for the metric is $286.9 million, indicating an 8.9% 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 fourth 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 $19.21 billion, reflecting an increase of 7.4% on a year-over-year basis.
For 2022, management expects expenses to be around $77 billion, up 8% year over year.
Asset Quality: With the rise in loan balance and global recession risk due to geopolitical and macroeconomic concerns, JPMorgan is expected to have built reserves in the fourth quarter. Our estimate for provision for credit losses is pegged at $1.79 billion against a provision benefit of $1.29 billion a year ago.
The Zacks Consensus Estimate for non-performing assets (NPAs) of $7.3 billion implies a 12.6% decline year over year. The consensus estimate for non-performing loans (NPLs) of $6.48 suggests a 16.8% fall. Our estimates for NPAs and NPLs are $7.39 billion and $6.55 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 -3.22%.
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 fourth-quarter earnings has been revised 1.6% lower to $3.12 over the past seven days. The estimated number reflects a decline of 6.3% from the year-ago reported number. Our estimate for earnings is $2.98.
On the other hand, the consensus estimate for sales of $33.94 billion suggests a 16% year-over-year rise. Our estimate for sales is $32.11 billion, up 9.8%.
Banks Worth a Look
Here are a couple of 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 The Bank of New York Mellon Corporation (BK - Free Report) is +6.31% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full year 2022 results on Jan 13.
Over the past seven days, BK’s Zacks Consensus Estimate for quarterly earnings has moved 3.5% north.
First Republic Bank is scheduled to release fourth-quarter and full-year 2022 earnings on Jan 13. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.25%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FRC’s quarterly earnings estimates have moved marginally lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.