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Rates, FRC Deal, Trading, IB to Aid JPMorgan (JPM) Q4 Earnings
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JPMorgan (JPM - Free Report) , scheduled to kick-start fourth-quarter 2023 earnings with other major industry players this Friday, Jan 12, is likely to have gained from high interest rates. The acquisition of First Republic Bank in May 20213 is expected to continue boosting its financials. These factors are likely to have aided the company’s net interest income (NII).
Though the Federal Reserve did not raise rates in the quarter, the policy rate stands at a 22-year high of 5.25-5.5% at present. This, along with the FRC deal, is likely to have favored JPM’s net interest margin (NIM) and NII.
Yet, the inversion of the yield curve in the December-ended quarter, a slowdown in deposit growth and rising funding costs are expected to have weighed on NIM to some extent. Also, per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans (except credit card loans) loans was subdued in the first two months of fourth-quarter 2023.
The Zacks Consensus Estimate for JPMorgan’s average earning assets is pegged at $3.33 trillion, indicating a 1.9% rise on a year-over-year basis. Our estimate for the metric is the same as the consensus number.
The Zacks Consensus Estimate for NII (reported) of $22.9 billion suggests a 13.3% increase. Our estimate for NII implies a rise of 14.9% to $23.2 billion.
Other Factors to Influence Q4 Results
Markets Revenues: Market volatility and client activity were muted in the fourth quarter. While the risks of a recession in the near term faded during the quarter, uncertainty related to geopolitical issues, inflation and high rates kept the investors on the sidelines.
Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded weak markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Also, 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 $1.95 billion suggests an almost 1% rise on solid equity market performance during the quarter. The Zacks Consensus Estimate for fixed-income markets revenues of $3.86 billion indicates 3.4% growth.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $1.91 billion and $3.88 billion, respectively.
Management expects markets revenues to be “flattish” on a year-over-year basis.
Investment Banking (IB) Fees: While green shoots were visible in the IB space in the fourth quarter, overall global M&A activities remained weak on a year-over-year basis. Several headwinds, including lingering geopolitical tensions, inflation concerns, higher interest rates and China’s economic cool-down, weighed on deal-making, particularly larger offerings in developed nations.
Thus, both the deal volume and total value numbers were weak in the fourth quarter, though JPMorgan’s leadership in the space is likely to have offered some support to advisory fees.
Likewise, the IPO market was subdued after witnessing considerable activity in the third quarter. On the other hand, robust equity market performance drove some activity in follow-up equity issuances. Also, despite seasonality, bond issuance volume was boosted by a decline in yields in the back half of the quarter and a slightly better operating backdrop compared with the last year. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been decent during the to-be-reported quarter.
The consensus estimate for IB revenues (in Corporate & Investment Banking segment) is pegged at $1.72 billion, suggesting a jump of 24%. Our estimate for the metric stands at $1.68 billion.
Management expects IB revenues to witness “pretty healthy” year-over-year growth and a sequential single-digit rise.
Mortgage Banking Fees: Mortgage rates declined in the fourth quarter of 2023. The rate on a 30-year fixed mortgage fell to 6.61% in December from 7.31% in September 2023-end on the Fed’s signal of no further rate hikes and three interest rate cuts in 2024.
Despite this favorable development, demand for mortgages was down. Given the home price appreciation and lower supply, mortgage origination volume continued to be weak in the fourth quarter. Nonetheless, supported by lower rates, there was a rise in refinancing activities. This is likely to have aided JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $359.1 million implies a significant jump from the prior-year quarter’s $98 million. Our estimate for the metric stands at $321.4 million.
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 fourth 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 $22 billion, implying an increase of 15.7% on a year-over-year basis.
Asset Quality: JPMorgan is expected to have set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given an uncertain macroeconomic outlook. Our estimate for provision for credit losses is pegged at $2.56 billion, suggesting a rise of 11.9% year over year.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.89 billion implies a 2.6% increase year over year. The consensus estimate for non-performing assets (NPAs) of $7.77 suggests a 7.3% rise. Our estimates for NPAs and NPLs are pegged at $7.73 billion and $7.05 billion, respectively.
2023 Management Guidance
NII is projected to be roughly $88.5 billion, driven by higher rates and slower-than-expected deposit repricing across both consumers and wholesale.
Card loan growth is expected to be robust, while demand in other loan portfolios, including commercial & industrial and mortgage, is likely to be “relatively modest” if economic growth slows down.
Further, a slight decline is expected in deposits across the franchise.
Adjusted expenses are anticipated to be around $84 billion. This doesn’t include legal charges and the FDIC special assessment fees related to systemic risk.
The card NCO rates are expected to be nearly 2.5%.
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 positiveEarnings ESP and a 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 -1.56%.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised marginally north to $3.65 over the past seven days. The estimated number indicates a rise of 2.2% from the year-ago reported number. Our estimate for earnings stands at $3.54.
Also, the consensus estimate for sales of $39.03 billion suggests a 13% year-over-year rise. Our estimate for sales is pegged at $37.85 billion, up 9.6%.
Major 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 U.S. Bancorp (USB - Free Report) is +1.75% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and full-year 2023 results on Jan 17.
Over the past seven days, the Zacks Consensus Estimate for USB’s quarterly earnings has remained unchanged at 99 cents.
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Rates, FRC Deal, Trading, IB to Aid JPMorgan (JPM) Q4 Earnings
JPMorgan (JPM - Free Report) , scheduled to kick-start fourth-quarter 2023 earnings with other major industry players this Friday, Jan 12, is likely to have gained from high interest rates. The acquisition of First Republic Bank in May 20213 is expected to continue boosting its financials. These factors are likely to have aided the company’s net interest income (NII).
Though the Federal Reserve did not raise rates in the quarter, the policy rate stands at a 22-year high of 5.25-5.5% at present. This, along with the FRC deal, is likely to have favored JPM’s net interest margin (NIM) and NII.
Yet, the inversion of the yield curve in the December-ended quarter, a slowdown in deposit growth and rising funding costs are expected to have weighed on NIM to some extent. Also, per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans (except credit card loans) loans was subdued in the first two months of fourth-quarter 2023.
The Zacks Consensus Estimate for JPMorgan’s average earning assets is pegged at $3.33 trillion, indicating a 1.9% rise on a year-over-year basis. Our estimate for the metric is the same as the consensus number.
The Zacks Consensus Estimate for NII (reported) of $22.9 billion suggests a 13.3% increase. Our estimate for NII implies a rise of 14.9% to $23.2 billion.
Other Factors to Influence Q4 Results
Markets Revenues: Market volatility and client activity were muted in the fourth quarter. While the risks of a recession in the near term faded during the quarter, uncertainty related to geopolitical issues, inflation and high rates kept the investors on the sidelines.
Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded weak markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Also, 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 $1.95 billion suggests an almost 1% rise on solid equity market performance during the quarter. The Zacks Consensus Estimate for fixed-income markets revenues of $3.86 billion indicates 3.4% growth.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $1.91 billion and $3.88 billion, respectively.
Management expects markets revenues to be “flattish” on a year-over-year basis.
Investment Banking (IB) Fees: While green shoots were visible in the IB space in the fourth quarter, overall global M&A activities remained weak on a year-over-year basis. Several headwinds, including lingering geopolitical tensions, inflation concerns, higher interest rates and China’s economic cool-down, weighed on deal-making, particularly larger offerings in developed nations.
Thus, both the deal volume and total value numbers were weak in the fourth quarter, though JPMorgan’s leadership in the space is likely to have offered some support to advisory fees.
Likewise, the IPO market was subdued after witnessing considerable activity in the third quarter. On the other hand, robust equity market performance drove some activity in follow-up equity issuances. Also, despite seasonality, bond issuance volume was boosted by a decline in yields in the back half of the quarter and a slightly better operating backdrop compared with the last year. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been decent during the to-be-reported quarter.
The consensus estimate for IB revenues (in Corporate & Investment Banking segment) is pegged at $1.72 billion, suggesting a jump of 24%. Our estimate for the metric stands at $1.68 billion.
Management expects IB revenues to witness “pretty healthy” year-over-year growth and a sequential single-digit rise.
Mortgage Banking Fees: Mortgage rates declined in the fourth quarter of 2023. The rate on a 30-year fixed mortgage fell to 6.61% in December from 7.31% in September 2023-end on the Fed’s signal of no further rate hikes and three interest rate cuts in 2024.
Despite this favorable development, demand for mortgages was down. Given the home price appreciation and lower supply, mortgage origination volume continued to be weak in the fourth quarter. Nonetheless, supported by lower rates, there was a rise in refinancing activities. This is likely to have aided JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $359.1 million implies a significant jump from the prior-year quarter’s $98 million. Our estimate for the metric stands at $321.4 million.
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 fourth 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 $22 billion, implying an increase of 15.7% on a year-over-year basis.
Asset Quality: JPMorgan is expected to have set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given an uncertain macroeconomic outlook. Our estimate for provision for credit losses is pegged at $2.56 billion, suggesting a rise of 11.9% year over year.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.89 billion implies a 2.6% increase year over year. The consensus estimate for non-performing assets (NPAs) of $7.77 suggests a 7.3% rise. Our estimates for NPAs and NPLs are pegged at $7.73 billion and $7.05 billion, respectively.
2023 Management Guidance
NII is projected to be roughly $88.5 billion, driven by higher rates and slower-than-expected deposit repricing across both consumers and wholesale.
Card loan growth is expected to be robust, while demand in other loan portfolios, including commercial & industrial and mortgage, is likely to be “relatively modest” if economic growth slows down.
Further, a slight decline is expected in deposits across the franchise.
Adjusted expenses are anticipated to be around $84 billion. This doesn’t include legal charges and the FDIC special assessment fees related to systemic risk.
The card NCO rates are expected to be nearly 2.5%.
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 positiveEarnings ESP and a 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 -1.56%.
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 marginally north to $3.65 over the past seven days. The estimated number indicates a rise of 2.2% from the year-ago reported number. Our estimate for earnings stands at $3.54.
Also, the consensus estimate for sales of $39.03 billion suggests a 13% year-over-year rise. Our estimate for sales is pegged at $37.85 billion, up 9.6%.
Major 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 U.S. Bancorp (USB - Free Report) is +1.75% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and full-year 2023 results on Jan 17.
Over the past seven days, the Zacks Consensus Estimate for USB’s quarterly earnings has remained unchanged at 99 cents.
M&T Bank (MTB - Free Report) is scheduled to release fourth-quarter and full-year 2023 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.83%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MTB’s quarterly earnings estimates have moved marginally upward over the past week to $3.74.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.