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JPMorgan (JPM) Q4 Earnings Top on Consumer, Trading Business

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Better-than-expected trading performance and rise in mortgage banking fees drove JPMorgan’s (JPM - Free Report) fourth-quarter 2019 earnings of $2.57 per share, which handily outpaced the Zacks Consensus Estimate of $2.32. Following the release, the stock rallied almost 1.5% in pre-market trading, indicating that investors have taken the results in their stride.

Lower interest rates drove mortgage banking fees (up 133%), mainly due to 94% rise in mortgage origination volume. Further, as expected, both equity and debt underwriting fees improved, rising 10% and 11%, respectively. Thus, this resulted in an increase in investment banking fees (up 5%) despite a 3% fall in advisory fees.

Also, fixed income markets revenues surged 86%, given a favorable comparison against a soft prior-year quarter performance and strong client activity across products. Likewise, equity markets revenues grew 15% driven by strong equity markets performance.

Among other positives, credit card sales volume was up 10% and merchant processing volume grew 7%. Further, Commercial Banking average loan balances were up 1% and Asset & Wealth Management average loan balances jumped 8%.

Also, provision for credit losses recorded a slight decline.

However, fall in consumer loans (excluding credit card loans) and lower interest rates hurt net interest income. Further, operating expenses increased in the reported quarter.

Overall quarterly performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Commercial Banking, reported a rise in net income on a year-over-year basis.

Net income increased 21% to $8.5 billion.

Fee Income Aids Revenues, Costs Rise

Net revenues as reported were $28.3 billion, up 9% from the year-ago quarter. Growth in balance sheet, solid trading results and improvement in home lending operation were the primary reasons for the upsurge. These were partially offset by lower interest rates. Also, the top line beat the Zacks Consensus Estimate of $27.3 billion.

Net interest income declined 1% to $14.2 billion. On the other hand, non-interest income was $14.2 billion, up 21%, mainly driven by impressive mortgage banking and principal transactions performance.

Non-interest expenses (on managed basis) were $16.3 billion, up 4% from the year-ago quarter. The rise was primarily due to auto loan depreciation and “higher volume-and revenue-related expense.”

Credit Quality Improves

Provision for credit losses was $1.4 billion, down 8% year over year.

Also, as of Dec 31, 2019, non-performing assets were $4.5 billion, down 13% from Dec 31, 2018. However, net charge-offs jumped 21% to $1.5 billion.

Strong Capital Position

Tier 1 capital ratio (estimated) was 14.1% as of fourth-quarter end compared with 13.7% on Dec 31, 2018. Tier 1 common equity capital ratio (estimated) was 12.4%, up from 12.0%. Total capital ratio was 16.0% (estimated) at the end of the fourth quarter compared with 15.5% as on Dec 31, 2018.

Book value per share was $75.98 as of Dec 31, 2019 compared with $70.35 on Dec 31, 2018. Tangible book value per common share was $60.98 at the end of December, up from $56.33.

Our Take

Branch expansion efforts, solid trading and investment banking performance and positive consumer sentiments are likely to continue supporting JPMorgan’s revenues. However, lower interest rates and weakness in corporate lending are expected to be near-term concerns.

JPMorgan Chase & Co. Price, Consensus and EPS Surprise

 

JPMorgan Chase & Co. Price, Consensus and EPS Surprise

JPMorgan Chase & Co. price-consensus-eps-surprise-chart | JPMorgan Chase & Co. Quote

JPMorgan currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates of Other Major Banks

Bank of America BAC, PNC Financial PNC and U.S. Bancorp USB are scheduled to come out with quarterly numbers on Jan 15.

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