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JPMorgan (JPM) Beats Q4 Earnings on Robust Bond Trading
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Driven by impressive trading revenues, JPMorgan Chase & Co.’s (JPM - Free Report) fourth-quarter 2016 earnings of $1.71 per share easily surpassed the Zacks Consensus Estimate of $1.42. Also, the figure reflects a 30% rise from the year-ago period. Notably, the results included a legal charge of $230 million and a tax benefit of $475 million related to the utilization of certain deferred tax assets.
Improved fixed income and equity trading revenues as well as a modest rise in mortgage banking fees and investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan, supported the top line.
Additionally, a decent decrease in operating expenses and reserve releases in the Oil & Gas and Metals & Mining portfolios aided the bottom-line growth. However, lower Card, Commerce Solutions & Auto revenues hurt results marginally in the quarter.
Notably, shares of JPMorgan gained over 1% in the pre-market trading. Perhaps, the earnings beat and solid trading revenues led to positive investor sentiments. However, the actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was impressive. All segments, except Consumer & Community Banking, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 2% year over year. Asset Management earned 16% higher than the prior-year quarter. Additionally, net income for Corporate & Investment Bank and Commercial Banking surged 96% and 25%, respectively, while the Corporate segment incurred a net loss.
Among other positives, credit card sales volume improved 14% and merchant processing volume grew 10%. Commercial Banking average loan balances increased 14% and Asset Management average loan balances rose 4%.
Higher Trading Revenues, Lower Costs
Managed net revenue of $24.3 billion in the quarter was up 2% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $23.1 billion. A 31% jump in fixed income market revenues and 8% growth in equity market trading were the primary reasons for top-line improvement.
Non-interest expense (on managed basis) was $13.8 billion, 3% lower than the year-ago quarter. The decline was primarily due to lower legal expenses and consistent cost-reduction initiatives.
Notably, excluding legal charges of $230 million, adjusted operating expenses were $13.6 billion.
Credit Quality: A Cause of Concern
JPMorgan’s credit quality deteriorated during the quarter. As of Dec 31, 2016, non-performing assets were $7.5 billion, up 7% from the year-ago period.
Net charge-offs were up 20% year over year to $1.3 billion. However, provision for credit losses fell 31% year over year to $864 million, primarily due to reserve releases in Consumer and Wholesale loan portfolios.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.1% as of Dec 31, 2016 compared with 13.5% as of Dec 31, 2015. Tier 1 common equity capital ratio (estimated) was 12.4% as of Dec 31, 2016, up from 11.8% as of Dec 31, 2015. Total capital ratio came in at 15.4% (estimated) as of Dec 31, 2016 compared with 15.1% as of Dec 31, 2015.
Book value per share was $64.06 as of Dec 31, 2016 compared with $60.46 as of Dec 31, 2015. Tangible book value per common share came in at $51.44 as of Dec 31, 2016 compared with $48.13 as of Dec 31, 2015.
Bottom Line
Impressive trading revenues during the quarter are expected to continue in the near-term. Moreover, rise in loans and deposits reflect an improving economy. This is expected to lead to rise in interest income, with further help from the Fed rate hike in Dec 2016. Also, the energy sector headwind seems to be easing as oil prices have rebounded.
J P Morgan Chase & Co Price, Consensus and EPS Surprise
Among the other major regional banks, Citigroup Inc. (C - Free Report) and U.S. Bancorp (USB - Free Report) are scheduled to report on Jan 18, while BB&T Corp. will release its results on Jan 19.
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JPMorgan (JPM) Beats Q4 Earnings on Robust Bond Trading
Driven by impressive trading revenues, JPMorgan Chase & Co.’s (JPM - Free Report) fourth-quarter 2016 earnings of $1.71 per share easily surpassed the Zacks Consensus Estimate of $1.42. Also, the figure reflects a 30% rise from the year-ago period. Notably, the results included a legal charge of $230 million and a tax benefit of $475 million related to the utilization of certain deferred tax assets.
Improved fixed income and equity trading revenues as well as a modest rise in mortgage banking fees and investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan, supported the top line.
Additionally, a decent decrease in operating expenses and reserve releases in the Oil & Gas and Metals & Mining portfolios aided the bottom-line growth. However, lower Card, Commerce Solutions & Auto revenues hurt results marginally in the quarter.
Notably, shares of JPMorgan gained over 1% in the pre-market trading. Perhaps, the earnings beat and solid trading revenues led to positive investor sentiments. However, the actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was impressive. All segments, except Consumer & Community Banking, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 2% year over year. Asset Management earned 16% higher than the prior-year quarter. Additionally, net income for Corporate & Investment Bank and Commercial Banking surged 96% and 25%, respectively, while the Corporate segment incurred a net loss.
Among other positives, credit card sales volume improved 14% and merchant processing volume grew 10%. Commercial Banking average loan balances increased 14% and Asset Management average loan balances rose 4%.
Higher Trading Revenues, Lower Costs
Managed net revenue of $24.3 billion in the quarter was up 2% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $23.1 billion. A 31% jump in fixed income market revenues and 8% growth in equity market trading were the primary reasons for top-line improvement.
Non-interest expense (on managed basis) was $13.8 billion, 3% lower than the year-ago quarter. The decline was primarily due to lower legal expenses and consistent cost-reduction initiatives.
Notably, excluding legal charges of $230 million, adjusted operating expenses were $13.6 billion.
Credit Quality: A Cause of Concern
JPMorgan’s credit quality deteriorated during the quarter. As of Dec 31, 2016, non-performing assets were $7.5 billion, up 7% from the year-ago period.
Net charge-offs were up 20% year over year to $1.3 billion. However, provision for credit losses fell 31% year over year to $864 million, primarily due to reserve releases in Consumer and Wholesale loan portfolios.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.1% as of Dec 31, 2016 compared with 13.5% as of Dec 31, 2015. Tier 1 common equity capital ratio (estimated) was 12.4% as of Dec 31, 2016, up from 11.8% as of Dec 31, 2015. Total capital ratio came in at 15.4% (estimated) as of Dec 31, 2016 compared with 15.1% as of Dec 31, 2015.
Book value per share was $64.06 as of Dec 31, 2016 compared with $60.46 as of Dec 31, 2015. Tangible book value per common share came in at $51.44 as of Dec 31, 2016 compared with $48.13 as of Dec 31, 2015.
Bottom Line
Impressive trading revenues during the quarter are expected to continue in the near-term. Moreover, rise in loans and deposits reflect an improving economy. This is expected to lead to rise in interest income, with further help from the Fed rate hike in Dec 2016. Also, the energy sector headwind seems to be easing as oil prices have rebounded.
J P Morgan Chase & Co Price, Consensus and EPS Surprise
J P Morgan Chase & Co Price, Consensus and EPS Surprise | J P Morgan Chase & Co Quote
Currently, JPMorgan carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among the other major regional banks, Citigroup Inc. (C - Free Report) and U.S. Bancorp (USB - Free Report) are scheduled to report on Jan 18, while BB&T Corp. will release its results on Jan 19.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>