JPMorgan Chase & Company
) failed to override the tough backdrop that banks have been
enduring since the year started and delivered a negative earnings
surprise of 9.2%. The banking giant came out with earnings of
$1.28 per share, missing the Zacks Consensus Estimate of $1.41 by
a wide margin. This is also a massive deterioration from the
year-ago number of $1.59.
Our quantitative model did not conclusively predict that JPMorgan
will beat the Zacks Consensus Estimate, as it did not have the
right combination of two key ingredients - a positive
and a Zacks Rank #3 (Hold) or better.
However, it would not be unjustified this time to blame
industry-wide headwinds, as the company did not have to pay
significantly for its wrongdoings and related settlements. A new
set of dampeners - dreary consumer and corporate activities, soft
trading volumes and sluggish mortgage banking - dragged earnings
this time around. Moreover, fundamental pressure from a low
interest rate and sluggish loan growth made matters worse.
Shares of JPMorgan lost more than 3.5% in the pre-trading
session, indicating that the market is upset with the results.
The price reaction during the trading session will give a better
sense about the extent of disappointment among
While its cost containment efforts were reflected in the
non-interest expenses, pressure on the top line and
higher-than-expected provision dominated. Most noticeably, all
business segments, except Corporate/Private Equity, witnessed
decline in net income from the year-ago quarter.
However, consumer deposits and card sales volume was above the
industry average. Moreover, Business Banking originations
witnessed a 22% improvement. Though Corporate & Investment
Bank (CIB) earned 24% lower than the prior-year quarter, it
maintained its #1 rank in Global Investment Banking fees. It also
ranked #1 in global debt, equity and syndicated loans.
Quarter in Detail
Managed net revenue of $23.9 billion in the quarter was down 8%
from the year-ago quarter. The top line also compared unfavorably
with the Zacks Consensus Estimate of $24.6 billion.
Managed non-interest revenues were down 12% from the year-ago
quarter at $13.0 billion. Net interest income also fell 2% year
over year to $10.9 billion, primarily reflecting the impact of
lower loan yields and lower trading and investment securities
balances. Non-interest expense was $14.6 billion, down 5% from
the year-ago quarter. Lower performance-based compensation in CIB
and lower mortgage production and servicing expenses primarily
drove this improvement.
The provision for credit losses was $850 million, up 38% from the
year-ago quarter. Total consumer provision for credit losses was
$807 million compared with $545 million in the year-ago quarter.
This reflects lower estimated losses in the mortgage and credit
JPMorgan's credit quality improved during the quarter. As of Mar
31, 2014, nonperforming assets were $9.5 billion, down 19% from
$11.7 billion a year ago. Consumer net charge-offs decreased 24%
year over year to $1.3 billion. As a result, the consumer net
charge-off rate improved to 1.42% from 1.92% a year ago.
JPMorgan maintained a strong capital position with Tier 1 capital
ratio of 12.1% as of Mar 31, 2014, compared with 11.9% as of Dec
31, 2013. Tier 1 common capital ratio was 10.9% as of Mar 31,
2014, compared with 10.7% as of Dec 31, 2013.
Book value per common share was $54.05 as of Mar 31, 2014
compared with $53.25 as of Dec 31, 2013 and $52.02 as of Mar 31,
2013. Tangible book value per common share came in at $41.73 as
of Mar 31, 2014 compared with $40.81 as of Dec 31, 2013 and
$39.54 as of Mar 31, 2013.
In Our View
The banking behemoth is working hard to reduce costs and improve
top line to remain profitable, but the ongoing legal issues,
though lower than before, would weaken its footing in the
industry to some extent.
Pressure on interest margin and the impact of a stringent
regulatory environment might also mar its results going forward.
However, improving retail and investment banking, credit trends
and business banking originations are expected to support the
In the banking sector, JPMorgan has kicked off the first-quarter
earnings season with
Wells Fargo & Co.
). Therefore, the release is going to be a significant indicator
of fundamental performance by the key banking sector.
Among other Wall Street big banks,
) is scheduled to release its first quarter results on Apr 14 and
Bank of America Corp.
) will report on Apr 16.
BANK OF AMER CP (BAC): Free Stock Analysis
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JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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