ii view: JP Morgan profits up but outlook disappoints

First-quarter results to the 31 March 

• Revenue up 8% to $42.5 billion
• Net income up 6% to $13.42 billion
• Earnings per share up 8% to $4.44
• Quarterly dividend up 10% from Q4 to $1.15 per share

Chief executive Jamie Dimon said:

“Many economic indicators continue to be favourable. However, looking ahead, we remain alert to a number of significant uncertain forces. First, the global landscape is unsettling – terrible wars and violence continue to cause suffering, and geopolitical tensions are growing. Second, there seems to be a large number of persistent inflationary pressures, which may likely continue. And finally, we have never truly experienced the full effect of quantitative tightening on this scale. We do not know how these factors will play out, but we must prepare the firm for a wide range of potential environments.

“We continue to be a pillar of strength for our clients, communities and markets across the world – while also delivering for shareholders. This quarter, we grew customers, continued to position the Firm for the future, maintained our fortress principles, raised the dividend and played a critical role in driving economic growth by extending credit.”

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ii round-up:

US banking mammoth JPMorgan Chase & Co (NYSE:JPM) today detailed quarterly revenues and earnings that beat Wall Street estimates but year-ahead estimates for Net Interest Income (NII) and group expenses were disappointing. 

First-quarter earnings rose 8% from a year ago to $4.44, helped by its previous takeover of First Republic Bank, exceeding analyst estimates for $4.11. Group expectations for full-year NII remained unchanged at $90 billion despite hopes for a possible increase given interest rates could stay higher for longer. 

Shares in the Dow Jones constituent fell 5% in US trading having come into this latest news up by 15% year-to-date. That’s similar to rival Citigroup Inc (NYSE:C) and comfortably ahead of a 2% gain for the Dow Jones index itself.

Expected costs, or expenses for 2024 of $91 billion topped prior management estimates, hindered by an additional $725 million contribution to the government’s Federal Deposit Insurance scheme.  

Profit for its Corporate and Investment Banking division rose 8% to $4.8 billion, aided by a one-fifth increase in Investment Banking related fees given higher debt and equity underwriting charges. Overall divisional revenues stayed flat at $13.6 billion.  

Elsewhere, revenue at its more traditional banking business rose just 1% to $17.7 billion when you exclude its First Republic acquisition, hindered by lower deposit balances and reduced deposit margins given fierce competition. Divisional profit fell 8% year-over-year to $4.8 billion, but a bad debt provision of $1.9 billion was lower than Wall Street estimates of $2.7 billion. 

The bank’s capital cushion, or CET1 ratio remained unchanged from the prior quarter at 15%. Assets under management for its Wealth division climbed 19% to $3.6 trillion, aided by net fund inflows and higher markets. 

JP Morgan previously declared a quarterly dividend of $1.15 per share, up 10% on the prior fourth quarter. Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, with an estimated fair value price of $221 per share. 

ii view:

Headquartered in New York, JP Morgan employs around 300,000 people globally. North America generated its biggest slug of revenues in 2023 at 78%, with its combined Europe, Middle East and Africa region next at 13%, and Asia Pacific most of the balance at 7%. US rivals include Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), and Citigroup.  

For investors, accompanying management comments flagging geopolitical tensions and quantitative tightening are not to be ignored. Competition across the sector remains intense, while an estimated price-to-net value of around 1.7 times is comfortably above most rivals, suggesting the shares are not obviously cheap. 

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More favourably, the benefits of a diversified business model have regularly seen strong conditions for one countering challenges at another. Heightened interest rates have aided overall revenues given the benefit to NII. The bank's finances remain robust given a CET1 ratio of 15%, while a forecast dividend yield of around 2.4% is not to be ignored.   

For now, and despite continued risks, this giant of the US banking sector appears to remain worthy of its place in diversified investor portfolios. 

Positives: 

• Business diversity
• Robust balance sheet

Negatives:

• Economic outlook uncertainty
• Heightened costs

The average rating of stock market analysts:

Buy