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FRC Deal, Rates to Aid JPMorgan (JPM) Q2 Earnings, IB to Hurt
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JPMorgan (JPM - Free Report) , scheduled to kick-start second-quarter 2023 earnings with other major industry players this Friday, Jul 14, is likely to have benefited from high interest rates. A decent lending scenario and the acquisition of First Republic Bank are also expected to have supported the company’s net interest income (NII).
The Federal Reserve continued to tighten its monetary policy (pausing hikes in the June FOMC meeting), raising interest rates by another 25 basis points during the quarter. Thus, the policy rate now stands at 5-5.25%. This, along with the FRC deal, is likely to have a favorable impact on JPM’s net interest margin (NIM) and NII. However, the inversion of the yield curve in the June-ended quarter and rising funding costs are expected to have weighed on NIM to some extent.
Lending activities gradually waned in the to-be-reported quarter on higher rates and a challenging macroeconomic backdrop. Per the Fed’s latest data, the demand for commercial and industrial loans was soft in April and May, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
The Zacks Consensus Estimate for JPMorgan’s average earning assets is pegged at $3.23 trillion, indicating a 4.4% fall on a year-over-year basis. Our estimate for the metric stands at $3.1 trillion, implying an 8.3% decline.
The Zacks Consensus Estimate for NII (reported) of $20.38 billion suggests a 34.7% surge. Our estimate for NII implies a jump of 42.4% to $21.54 billion.
Other Key Factors to Influence Q2 Results
Markets Revenues: Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, central banks’ hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, JPMorgan is likely to have recorded a weak performance in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Further, tougher comps from the prior year are expected to have weighed on JPM’s year-over-year performance. The consensus estimate for equity markets revenues of $3.05 billion suggests a 1% fall. The Zacks Consensus Estimate for fixed-income markets revenues of $4.91 billion indicates a 4.2% increase.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $2.92 billion and $4.95 billion, respectively.
Investment Banking (IB) Fees: Global deal-making continued to shrink on a year-over-year basis in the second quarter, while green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.
Thus, both the deal volume and total value numbers crashed in the second quarter. Also, JPMorgan’s leadership in the space is less likely to have offered support to advisory fees.
For similar reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume was also muted as investors turned pessimistic. Hence, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been hurt during the June-ended quarter.
The consensus estimate for investment banking revenues is pegged at $1.58 billion. Our estimate for the metric stands at $1.42 billion.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to decline in the second quarter. Mortgage banking revenues have also been facing tough comps from the prior year, which were boosted by lower mortgage rates. In the to-be-reported quarter, mortgage rates continued to rise, with the rate on 30-year fixed mortgage reaching 6.81% in June, up from 4.6% reported in the prior-year quarter.
Higher mortgage rates, which kept home buyers on the sidelines, led to a smaller origination volume. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $233.1 million calls for a slide of 38.3% from the prior-year quarter's reported number. Our estimate for the metric stands at $204.7 million, indicating a 45.8% plunge.
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 in the second quarter. Also, investments in technology to strengthen digital offerings might have led to a rise in costs.
Our estimate for non-interest expenses stands at $21.26 billion, implying an increase of 13.4% on a year-over-year basis.
Asset Quality: JPMorgan is expected to have set aside substantial money for potential bad loans, given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions.
Our estimate for provision for credit losses is pegged at $1.91 billion, suggesting a surge of 73.3% year over year.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.72 billion implies a 6.2% decline year over year. The consensus estimate for non-performing assets (NPAs) of $7.37 suggests a 6.1% fall. Our estimates for NPAs and NPLs are pegged at $7.49 billion and $7.03 billion, respectively.
What the Zacks Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for JPMorgan this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for JPMorgan is -2.28%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Zacks Consensus Estimate for second-quarter earnings has been revised almost 1% north to $3.63 over the past seven days. The estimated number indicates a jump of 32.6% from the year-ago reported number. Our estimate for earnings stands at $3.50.
Also, the consensus estimate for sales of $37.03 billion suggests a 20.6% year-over-year rise. Our estimate for sales is pegged at $36.63 billion, up 19.3%.
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:
The Earnings ESP for Wells Fargo (WFC - Free Report) is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14.
Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has moved 1.7% lower.
Image: Bigstock
FRC Deal, Rates to Aid JPMorgan (JPM) Q2 Earnings, IB to Hurt
JPMorgan (JPM - Free Report) , scheduled to kick-start second-quarter 2023 earnings with other major industry players this Friday, Jul 14, is likely to have benefited from high interest rates. A decent lending scenario and the acquisition of First Republic Bank are also expected to have supported the company’s net interest income (NII).
The Federal Reserve continued to tighten its monetary policy (pausing hikes in the June FOMC meeting), raising interest rates by another 25 basis points during the quarter. Thus, the policy rate now stands at 5-5.25%. This, along with the FRC deal, is likely to have a favorable impact on JPM’s net interest margin (NIM) and NII. However, the inversion of the yield curve in the June-ended quarter and rising funding costs are expected to have weighed on NIM to some extent.
Lending activities gradually waned in the to-be-reported quarter on higher rates and a challenging macroeconomic backdrop. Per the Fed’s latest data, the demand for commercial and industrial loans was soft in April and May, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
The Zacks Consensus Estimate for JPMorgan’s average earning assets is pegged at $3.23 trillion, indicating a 4.4% fall on a year-over-year basis. Our estimate for the metric stands at $3.1 trillion, implying an 8.3% decline.
The Zacks Consensus Estimate for NII (reported) of $20.38 billion suggests a 34.7% surge. Our estimate for NII implies a jump of 42.4% to $21.54 billion.
Other Key Factors to Influence Q2 Results
Markets Revenues: Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, central banks’ hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, JPMorgan is likely to have recorded a weak performance in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Further, tougher comps from the prior year are expected to have weighed on JPM’s year-over-year performance. The consensus estimate for equity markets revenues of $3.05 billion suggests a 1% fall. The Zacks Consensus Estimate for fixed-income markets revenues of $4.91 billion indicates a 4.2% increase.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $2.92 billion and $4.95 billion, respectively.
Investment Banking (IB) Fees: Global deal-making continued to shrink on a year-over-year basis in the second quarter, while green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.
Thus, both the deal volume and total value numbers crashed in the second quarter. Also, JPMorgan’s leadership in the space is less likely to have offered support to advisory fees.
For similar reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume was also muted as investors turned pessimistic. Hence, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been hurt during the June-ended quarter.
The consensus estimate for investment banking revenues is pegged at $1.58 billion. Our estimate for the metric stands at $1.42 billion.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to decline in the second quarter. Mortgage banking revenues have also been facing tough comps from the prior year, which were boosted by lower mortgage rates. In the to-be-reported quarter, mortgage rates continued to rise, with the rate on 30-year fixed mortgage reaching 6.81% in June, up from 4.6% reported in the prior-year quarter.
Higher mortgage rates, which kept home buyers on the sidelines, led to a smaller origination volume. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $233.1 million calls for a slide of 38.3% from the prior-year quarter's reported number. Our estimate for the metric stands at $204.7 million, indicating a 45.8% plunge.
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 in the second quarter. Also, investments in technology to strengthen digital offerings might have led to a rise in costs.
Our estimate for non-interest expenses stands at $21.26 billion, implying an increase of 13.4% on a year-over-year basis.
Asset Quality: JPMorgan is expected to have set aside substantial money for potential bad loans, given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions.
Our estimate for provision for credit losses is pegged at $1.91 billion, suggesting a surge of 73.3% year over year.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.72 billion implies a 6.2% decline year over year. The consensus estimate for non-performing assets (NPAs) of $7.37 suggests a 6.1% fall. Our estimates for NPAs and NPLs are pegged at $7.49 billion and $7.03 billion, respectively.
What the Zacks Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for JPMorgan this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for JPMorgan is -2.28%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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 second-quarter earnings has been revised almost 1% north to $3.63 over the past seven days. The estimated number indicates a jump of 32.6% from the year-ago reported number. Our estimate for earnings stands at $3.50.
Also, the consensus estimate for sales of $37.03 billion suggests a 20.6% year-over-year rise. Our estimate for sales is pegged at $36.63 billion, up 19.3%.
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:
The Earnings ESP for Wells Fargo (WFC - Free Report) is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14.
Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has moved 1.7% lower.
PNC Financial (PNC - Free Report) is scheduled to release second-quarter 2023 earnings on Jul 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.41%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC’s quarterly earnings estimates have moved 1.2% lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.