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JPMorgan (JPM) Q4 Earnings Lag on Trading, Underwriting Woes
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Dismal fixed income trading and underwriting business performance affected JPMorgan’s (JPM - Free Report) fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.
The stock declined more than 2.5% in pre-market trading, indicating that investors have not taken the results in their stride. Notably, the full-day trading session will depict a better picture.
As expected, Markets revenues recorded a fall. A 15% rise in equity trading income was offset by 16% decline in fixed income trading revenues. Further, home lending business revenues fell 8% year over year, mainly due to lower net production revenues.
Further, operating expenses increased in the reported quarter. Also, provision for credit losses recorded a rise.
Notably, investment banking fees recorded modest growth, with 38% jump in advisory fees, partially offset by decline in equity and debt underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income growth.
Among other positives, credit card sales volume was up 10% and merchant processing volume grew 17%. Further, Commercial Banking average core balances jumped 2% and Asset Management average loan balances were up 13%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank and Asset & Wealth Management, reported rise in net income on a year-over-year basis.
Net income surged 67% from the prior-year quarter to $7.1 billion. The year-ago quarter included a $2.4 billion reduction to net income due to the enactment of the Tax Cuts & Jobs Act.
Higher Rates & Loan Growth Aid Revenues, Costs Rise
Net revenues as reported were $26.1 billion, up 7% from the year-ago quarter. Rising rates and loan growth were the main reasons for the improvement. The positives were partially offset by decrease in Markets net interest revenues and mortgage banking fees. However, the top line missed the Zacks Consensus Estimate of $26.7 billion.
Non-interest expenses (on managed basis) were $15.7 billion, up 6% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.5 billion, up 18% year over year. The increase was mainly due to reserve builds in consumer and wholesale loan portfolios.
As of Dec 31, 2018, non-performing assets were $5.2 billion, down 19% from Dec 31, 2017. Also, net charge-offs declined 2% year over year to $1.2 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.7% as of fourth-quarter end compared with 13.9% on Dec 31, 2017. Tier 1 common equity capital ratio (estimated) was 12.0% as of Dec 31, 2018, down from 12.2%. Total capital ratio was 15.5% (estimated) at the end of the year compared with 15.9% on Dec 31, 2017.
Book value per share was $70.35 as of Dec 31, 2018 compared with $67.04 on Dec 31, 2017. Tangible book value per common share came in at $56.33 at the end of December compared with $53.56 a year ago.
Bottom Line
Continued improvement in loans, higher interest rates and branch expansion efforts are expected to support JPMorgan’s revenues. However, slowdown in mortgage business is likely to continue in the near term for JPMorgan. Also, rise in operating expenses and credit costs makes us apprehensive.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Citigroup (C - Free Report) delivered a positive earnings surprise of 3.9% in fourth-quarter 2018, backed by expense control and lower cost of credit. Adjusted net income per share of $1.61 for the quarter handily outpaced the Zacks Consensus Estimate of $1.55. Also, adjusted earnings climbed 26% year over year.
Among the other major regional banks, Bank of America (BAC - Free Report) and U.S. Bancorp (USB - Free Report) are slated to report on Jan 17.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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JPMorgan (JPM) Q4 Earnings Lag on Trading, Underwriting Woes
Dismal fixed income trading and underwriting business performance affected JPMorgan’s (JPM - Free Report) fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.
The stock declined more than 2.5% in pre-market trading, indicating that investors have not taken the results in their stride. Notably, the full-day trading session will depict a better picture.
As expected, Markets revenues recorded a fall. A 15% rise in equity trading income was offset by 16% decline in fixed income trading revenues. Further, home lending business revenues fell 8% year over year, mainly due to lower net production revenues.
Further, operating expenses increased in the reported quarter. Also, provision for credit losses recorded a rise.
Notably, investment banking fees recorded modest growth, with 38% jump in advisory fees, partially offset by decline in equity and debt underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income growth.
Among other positives, credit card sales volume was up 10% and merchant processing volume grew 17%. Further, Commercial Banking average core balances jumped 2% and Asset Management average loan balances were up 13%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank and Asset & Wealth Management, reported rise in net income on a year-over-year basis.
Net income surged 67% from the prior-year quarter to $7.1 billion. The year-ago quarter included a $2.4 billion reduction to net income due to the enactment of the Tax Cuts & Jobs Act.
Higher Rates & Loan Growth Aid Revenues, Costs Rise
Net revenues as reported were $26.1 billion, up 7% from the year-ago quarter. Rising rates and loan growth were the main reasons for the improvement. The positives were partially offset by decrease in Markets net interest revenues and mortgage banking fees. However, the top line missed the Zacks Consensus Estimate of $26.7 billion.
Non-interest expenses (on managed basis) were $15.7 billion, up 6% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.5 billion, up 18% year over year. The increase was mainly due to reserve builds in consumer and wholesale loan portfolios.
As of Dec 31, 2018, non-performing assets were $5.2 billion, down 19% from Dec 31, 2017. Also, net charge-offs declined 2% year over year to $1.2 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.7% as of fourth-quarter end compared with 13.9% on Dec 31, 2017. Tier 1 common equity capital ratio (estimated) was 12.0% as of Dec 31, 2018, down from 12.2%. Total capital ratio was 15.5% (estimated) at the end of the year compared with 15.9% on Dec 31, 2017.
Book value per share was $70.35 as of Dec 31, 2018 compared with $67.04 on Dec 31, 2017. Tangible book value per common share came in at $56.33 at the end of December compared with $53.56 a year ago.
Bottom Line
Continued improvement in loans, higher interest rates and branch expansion efforts are expected to support JPMorgan’s revenues. However, slowdown in mortgage business is likely to continue in the near term for JPMorgan. Also, rise in operating expenses and credit costs makes us apprehensive.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
JPMorgan Chase & Co. Price, Consensus and EPS Surprise | JPMorgan Chase & Co. Quote
JPMorgan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance and Earnings Dates
Citigroup (C - Free Report) delivered a positive earnings surprise of 3.9% in fourth-quarter 2018, backed by expense control and lower cost of credit. Adjusted net income per share of $1.61 for the quarter handily outpaced the Zacks Consensus Estimate of $1.55. Also, adjusted earnings climbed 26% year over year.
Among the other major regional banks, Bank of America (BAC - Free Report) and U.S. Bancorp (USB - Free Report) are slated to report on Jan 17.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>