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JPMorgan (JPM) Q1 Earnings Lag on Coronavirus Credit Costs
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JPMorgan’s (JPM - Free Report) first-quarter 2020 earnings came in at 78 cents per share, which missed the Zacks Consensus Estimate of $1.70, thanks to a substantial rise in provisions owing to coronavirus-related concerns.
The weak results were attributed to provision builds owing to deterioration in the macro-economic backdrop, losses related to funding spread widening on derivatives and bridge book markdowns. Excluding these, earnings per share amounted to $2.89.
The company built a large reserve to tide over economic slowdown. In a statement, Jamie Dimon said, “…given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8B, resulting in total credit costs of $8.3B for the quarter.”
Further, operating expenses increased year over year in the reported quarter.
Lower interest rates drove mortgage production revenues (up 60%), while loan sales in Home Lending resulted in a decline in servicing fees (down 99%). This resulted in lower mortgage fees and related income. As expected, advisory fees declined. Conversely, both equity and debt underwriting fees improved, rising 25% and 15%, respectively, leading to 3% growth in investment banking fees.
Also, fixed income markets revenues surged 34%, given strong client activity across products. Similarly, equity markets revenues grew 28% driven by higher revenues in derivatives.
Among other positives, credit card sales volume was up 4% and merchant processing volume grew 5% from the prior-year quarter. Further, Commercial Banking loan balances were up 14%, and Asset & Wealth Management loan balances jumped 16% from the year-ago quarter.
Overall quarterly performance of JPMorgan’s business segments, in terms of net income generation, was disappointing. All segments, except Commercial Banking, reported a drastic decline in net income on a year-over-year basis.
Net income plunged 69% from the prior-year period to $2.9 billion.
Lower Rates Hurt Revenues, Costs Rise
Net revenues as reported were $28.3 billion, down 3% from the year-ago quarter. Lower rates and a few significant non-recurring items were the primary reasons for the decline. Also, the top line lagged the Zacks Consensus Estimate of $29 billion.
Net interest income was on par with the prior-year number of $14.4 billion. Non-interest income was $13.8 billion, down 6%, mainly due to dismal mortgage banking and principal transactions performance.
Non-interest expenses (on managed basis) were $16.9 billion, up 3% from the year-ago quarter. The rise was primarily due to a rise in legal costs and “higher volume-and revenue-related expense.”
Credit Quality Worsens
Provision for credit losses was $8.3 billion, up significantly from the prior-year quarter. The rise was largely due to reserve build amid deteriorating operating backdrop as a result of the impact of coronavirus and continued pressure on oil prices.
As of Mar 31, 2020, non-performing assets were $6.4 billion, up 14% from Mar 31, 2019. Further, net charge-offs increased 8% from the year-ago period to $1.5 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.3% at the end of the first quarter compared with 13.8% on Mar 31, 2019. Tier 1 common equity capital ratio (estimated) was 11.5%, up from 12.1% as of the same date. Total capital ratio was 15.5% (estimated) at the end of the first quarter compared with 15.7% as of Mar 31, 2019.
Book value per share was $75.88 as of Mar 31, 2020 compared with $71.78 in the corresponding period of 2019. Tangible book value per common share was $60.71 at the end of March, up from $57.62 in the comparable year-ago period.
Our Take
Branch expansion efforts and solid trading performance are likely to continue supporting JPMorgan’s revenues. However, lower interest rates, dismal investment banking, economic slowdown and weakness in corporate lending are near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and U.S. Bancorp (USB - Free Report) are scheduled to come out with quarterly numbers on Apr 15.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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JPMorgan (JPM) Q1 Earnings Lag on Coronavirus Credit Costs
JPMorgan’s (JPM - Free Report) first-quarter 2020 earnings came in at 78 cents per share, which missed the Zacks Consensus Estimate of $1.70, thanks to a substantial rise in provisions owing to coronavirus-related concerns.
The weak results were attributed to provision builds owing to deterioration in the macro-economic backdrop, losses related to funding spread widening on derivatives and bridge book markdowns. Excluding these, earnings per share amounted to $2.89.
The company built a large reserve to tide over economic slowdown. In a statement, Jamie Dimon said, “…given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8B, resulting in total credit costs of $8.3B for the quarter.”
Further, operating expenses increased year over year in the reported quarter.
Lower interest rates drove mortgage production revenues (up 60%), while loan sales in Home Lending resulted in a decline in servicing fees (down 99%). This resulted in lower mortgage fees and related income. As expected, advisory fees declined. Conversely, both equity and debt underwriting fees improved, rising 25% and 15%, respectively, leading to 3% growth in investment banking fees.
Also, fixed income markets revenues surged 34%, given strong client activity across products. Similarly, equity markets revenues grew 28% driven by higher revenues in derivatives.
Among other positives, credit card sales volume was up 4% and merchant processing volume grew 5% from the prior-year quarter. Further, Commercial Banking loan balances were up 14%, and Asset & Wealth Management loan balances jumped 16% from the year-ago quarter.
Overall quarterly performance of JPMorgan’s business segments, in terms of net income generation, was disappointing. All segments, except Commercial Banking, reported a drastic decline in net income on a year-over-year basis.
Net income plunged 69% from the prior-year period to $2.9 billion.
Lower Rates Hurt Revenues, Costs Rise
Net revenues as reported were $28.3 billion, down 3% from the year-ago quarter. Lower rates and a few significant non-recurring items were the primary reasons for the decline. Also, the top line lagged the Zacks Consensus Estimate of $29 billion.
Net interest income was on par with the prior-year number of $14.4 billion. Non-interest income was $13.8 billion, down 6%, mainly due to dismal mortgage banking and principal transactions performance.
Non-interest expenses (on managed basis) were $16.9 billion, up 3% from the year-ago quarter. The rise was primarily due to a rise in legal costs and “higher volume-and revenue-related expense.”
Credit Quality Worsens
Provision for credit losses was $8.3 billion, up significantly from the prior-year quarter. The rise was largely due to reserve build amid deteriorating operating backdrop as a result of the impact of coronavirus and continued pressure on oil prices.
As of Mar 31, 2020, non-performing assets were $6.4 billion, up 14% from Mar 31, 2019. Further, net charge-offs increased 8% from the year-ago period to $1.5 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.3% at the end of the first quarter compared with 13.8% on Mar 31, 2019. Tier 1 common equity capital ratio (estimated) was 11.5%, up from 12.1% as of the same date. Total capital ratio was 15.5% (estimated) at the end of the first quarter compared with 15.7% as of Mar 31, 2019.
Book value per share was $75.88 as of Mar 31, 2020 compared with $71.78 in the corresponding period of 2019. Tangible book value per common share was $60.71 at the end of March, up from $57.62 in the comparable year-ago period.
Our Take
Branch expansion efforts and solid trading performance are likely to continue supporting JPMorgan’s revenues. However, lower interest rates, dismal investment banking, economic slowdown and weakness in corporate lending are near-term concerns.
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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Date of Other Major Banks
Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and U.S. Bancorp (USB - Free Report) are scheduled to come out with quarterly numbers on Apr 15.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>