ii view: Grim outlook as JP Morgan profit plunges

As the corona crisis follows the financial crash, can JP Morgan afford to keep paying a dividend?

First-quarter results to the end of March 2020

• Net revenue down 3% to $29.1 billion
• Net income down 69% to $2.87 billion
• Earnings per share down 71% to $0.78

Chief executive Jamie Dimon said:

"The company entered this crisis in a position of strength, and we remain well capitalized and highly liquid - total liquidity resources of over $1 trillion. And JPMorgan Chase performed well in what was a very tough and unique operating environment.

"In the first quarter, the underlying results of the company were extremely good, however given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8 billion, resulting in total credit costs of $8.3 billion for the quarter.” 

ii round-up:

US banking mammoth JP Morgan (NYSE:JPM) reported a plunge in profit as it made a near $7 billion provision to cover potential loan defaults given huge disruption caused by Covid-19.

Net income or profit fell by 69% to $2.87 billion.  

The bank, which operates in over 100 markets globally, now has a total of $8.3 billion available to cover loans to companies which may go bust or default.

US unemployment or non-farm payrolls dropped by 701,000 in March as companies moved quickly to lay-off workers. This was the first decline since September 2010 and came close to the peak of 800,000 seen in May 2009 - the height of the financial crisis. 

The results followed comments last week from chief executive Jamie Damon warning of a "meaningful hit to profits". 

The share price gave up early gains having already fallen by nearly 30% year-to-date. Shares in rivals Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) are down by more than 40% during 2020.

Well Fargo simultaneously posted quarterly results. Profits also plunged as bad debt provisions soared. 

Net interest income at JP Morgan proved flat at $14.5 billion. The hit from lower interest rates was compensated for by higher returns from its investment banking business. The bank in mid-March declared a quarterly dividend of 90 cents per share. 

ii view:

JP Morgan is a highly diverse US banking giant. Its operations cover both traditional consumer and corporate banking along with investment banking and asset management. With North America generating around three quarters of its revenues, the bank is seen as offering a broader health check on the wider US economy. 

Covid-19 has seen Jamie Dimon pointing to the likelihood of a fairly severe recession. The International Monetary Fund (IMF) is forecasting the worst recession since the Great Depression. JP Morgan has moved quickly to cover the expected deep economic downturn. 

For investors, given the fallout and subsequent rebuilding of balance sheets from the financial crisis, US banks have generally come into this crisis in good shape – including JP Morgan. Despite recent health issues, the vast experience of JPM's chief executive also offers reassurance, while a dividend continues to be paid. But with banks being bailed out in the financial crisis, governments are now increasingly looking towards them to help support companies large and small – support which could also eventually require a suspension of the dividend payment. 

Positives: 

• Business diversity
• Highly regarded chief executive

Negatives:

• CEO previously warned of potential for a suspension of the dividend payment
• Lower interest rates are broadly bad for bank profitability

The average rating of stock market analysts:

Strong hold