Proving pessimists wrong,
JPMorgan Chase & Company
) braved the tough industry backdrop and seasonal softness with its
underlying strength and delivered a positive earnings surprise of
22.3% in the second quarter. The banking giant came out with
earnings of $1.59 per share, beating the Zacks Consensus Estimate
of $1.30. The number is also marginally less than $1.60
earned in the year- ago quarter.
Results exclude an after-tax legal expense of 13 cents per share.
Considering this one-time item, the company has earned $1.46 per
In addition to seasonally soft trading volumes, there were legal
costs and lower reserve release to drag the results, but top-line
strength dominated. Also, its cost containment efforts were
reflected in the non-interest expenses.
Shares of JPMorgan gained 3.0% in the pre-trading session,
indicating that the market is encouraged with the unexpected
earnings beat. The price reaction during the trading session will
give a better sense about the extent of cheer among
All business segments but for Consumer & Community Banking and
Corporate and Investment Bank, witnessed year-over-year improvement
in net income.
Most noticeably, consumer and corporate deposits, card sales
volume, client investment assets, and business banking loan
originations showed year-over-year improvement. Though Corporate
& Investment Bank earned 31% less 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 $25.3 billion in the quarter was down 2%
from the year-ago quarter. However, it compared favorably with the
Zacks Consensus Estimate of $23.7 billion.
Managed non-interest revenues were down 5% from the year-ago
quarter at $14.3 billion. However, net interest income increased 2%
to $11.0 billion, primarily reflecting the impact of higher
investment securities yields, lower long-term debt and deposit
yields, and higher loan balances.
Non-interest expense was $15.4 billion, down 3% from the year-ago
quarter. Lower performance-based compensation in Corporate &
Investment Bank and a decrease in mortgage production and servicing
expenses primarily drove this improvement. Legal expense declined
1% to $669 million.
The provision for credit losses was $692 million, up from $47
million the year-ago quarter. Total consumer provision for credit
losses was $848 million compared with a benefit of $29 million in
the year-ago quarter.
JPMorgan's credit quality improved during the quarter. As of Jun
30, 2014, nonperforming assets were $9.0 billion, down 18% from
$11.0 billion a year ago. Consumer net charge-offs decreased 20%
year over year to $1.2 billion. As a result, the consumer net
charge-off rate improved to 1.34% from 1.66% a year ago.
JPMorgan's capital ratios showed a decline during the quarter. Tier
1 capital ratio was 11.1% as of Jun 30, 2014, compared with 12.1%
as of Mar 31, 2014. Tier 1 common equity capital ratio was 9.8% as
of Jun 30, 2014, compared with 10.9% as of Mar 31, 2014.
Book value per common share was $55.53 as of Jun 30, 2014 compared
with $54.05 as of Mar 31, 2014 and $52.48 as of Jun 30, 2013.
Tangible book value per common share came in at $43.17 as of Jun
30, 2014 compared with $41.73 as of Mar 31, 2014 and $39.97 as of
Jun 30, 2013.
In Our View
The banking behemoth is working hard to reduce costs and improve
top line to regain its earnings strength. In addition to the
ongoing workforce reduction strategy, the company has started
seeking avenues to slash wasteful expenditure. (Read:
JPMorgan Aims at Prudent Cost Management
However, nagging legal issues though lower than before, and
prevalence of a tough industry backdrop would drag its bottom-line
Pressure on interest margin with no expectation of interest rate
hike in the near term and the impact of a stringent regulatory
environment might also mar its results going forward. However,
improving retail and investment banking (with heightened M&A
activities and IPOs), credit trends and business banking
originations are expected to support the bottom line.
In the banking sector,
Wells Fargo & Company
) kicked off the earnings season, for a change, and displayed the
weakness in the broader industry. However, as JPMorgan is the
largest bank by assets, its impressive results will inject optimism
into the key banking sector.
Among other Wall Street big banks,
Bank of America Corp.
) is scheduled to release its second quarter results on Jul 16 and
) will report on Jul 17.
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