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JPMorgan (JPM) Q1 Earnings Beat on Rates, Debt Underwriting

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Higher rates and improved investment banking performance drove JPMorgan’s (JPM - Free Report) first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter.

The stock rose nearly 3% in pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income.

Among other positives, credit card sales volume was up 10% and merchant processing volume grew 13%. Further, Commercial Banking average core balances jumped 2% and Asset Management average loan balances were up 10%.

As expected, both equity trading income (down 14%) and fixed income trading revenues (18% down) recorded a fall. Further, home lending business revenues declined 11% year over year, mainly due to lower net servicing revenues.

Operating expenses increased in the reported quarter. Also, provision for credit losses recorded a rise.

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 increased 5% to $9.2 billion.

Investment Banking, Higher Rates Aid Revenues, Costs Rise

Net revenues as reported were $29.1 billion, up 4% from the year-ago quarter. Rising rates, balance sheet and increase in investment banking fees growth were the main reasons for the improvement. These positives were partially offset by lower Markets revenues and mortgage banking fees. Also, the top line beat the Zacks Consensus Estimate of $28 billion.

Non-interest expenses (on managed basis) were $16.4 billion, up 2% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.

Credit Quality Deteriorates

Provision for credit losses was $1.5 billion, up 28% year over year. The increase was mainly due to reserve builds in wholesale loan portfolios.

Also, net charge-offs grew 2% year over year to $1.4 billion. However, as of Mar 31, 2019, non-performing assets were $5.6 billion, down 12% from Mar 31, 2018.

Strong Capital Position

Tier 1 capital ratio (estimated) was 13.8% as of first-quarter end compared with 13.5% on Mar 31, 2018. Tier 1 common equity capital ratio (estimated) was 12.1% as of Mar 31, 2019, up from 11.8%. Total capital ratio was 15.7% (estimated) at the end of the year compared with 15.3% on Mar 31, 2018.

Book value per share was $71.78 as of Mar 31, 2019 compared with $67.59 on Mar 31, 2018. Tangible book value per common share came in at $57.62 at the end of March compared with $54.05 a year ago.

Bottom Line

Continued improvement in loans, higher interest rates and branch expansion efforts will likely support JPMorgan’s revenues. However, slowdown in mortgage business is likely to be a near-term concern for the company. 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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates of Other Major Banks

Citigroup (C - Free Report) is slated to announce results on Apr 15, while Bank of America (BAC - Free Report) and U.S. Bancorp (USB - Free Report) will come out with quarterly numbers of Apr 16 and Apr 17, respectively.

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