Maintaining its track record,
JPMorgan Chase & Company
(
JPM
) reported third quarter earnings per share of $1.40, way ahead of
the Zacks Consensus Estimate of $1.21. This also compares favorably
with $1.02 earned in the prior-year quarter.
Despite the impact of a number of legal and regulatory issues as
well as fundamental pressures like low interest rate and sluggish
loan demand, JPMorgan's almost 16% earnings surprise signals good
going for the sector. A marked improvement in capital market
activity and healthy mortgage business, which helped JPMorgan
overcome its difficulties to a great extent, should also lift the
results of other mega banks during the quarter.
JPMorgan's earnings per share for the reported quarter comprised
certain significant nonrecurring items. These include a benefit of
14 cents from reduced mortgage loan loss reserves in real estate
portfolios, a benefit of 14 cents from extinguishment gains on
redeemed trust preferred capital debt securities in Corporate,
detriment of 13 cents due to incremental charge-offs and expense
for additional litigation reserves in Corporate of 11 cents. All
these are after-tax numbers. Excluding these items, JPMorgan earned
$1.36 per share.
Results for the reported quarter primarily benefited from improved
revenue and slowdown in provision for credit losses, marginally
offset by still high noninterest expenses. The earnings uptrend was
a result of all business segments performing well.
Most noticeably, the Corporate/Private Equity segment finally
turned profitable after incurring losses for several quarters.
Investment banking results witnessed marginal deterioration from
the prior-year quarter due to lower revenue and higher noninterest
expenses.
However, the results were much worse than the prior quarter
despite a benefit from the provision for credit losses. In Fixed
Income results were favourable in Investment Bank during the
quarter. With a healthy market share, the segment maintained its #1
rank in Global Investment Banking fees.
Retail Financial Services and Commercial Banking divisions
demonstrated good underlying performances, with improved revenue
and earnings. Also, with positive credit trends and an expansion in
credit card sales volume, the performance of the Card business was
impressive. Treasury & Securities Services reported higher
deposit balances during the quarter and performed better than the
prior-year quarter.
Quarter in Detail
Managed net revenue of $25.9 billion in the quarter was up 6% from
the year-ago quarter. The figure also compares favorably with the
Zacks Consensus Estimate of $24.6 billion.
Managed non-interest revenue increased 18% from the year-ago period
to $14.7 billion. The increase was due to higher mortgage fees and
related income, higher principal transactions and higher investment
banking fees. Net interest income fell 6% from the year-ago quarter
to $11.2 billion, primarily reflecting the impact of low interest
rates. Non-interest expense was $15.4 billion, down 1% from the
year-ago quarter.
Managed provision for credit losses decreased 26% from the year-ago
quarter to $1.8 billion. Total consumer provision for credit losses
was $1.9 billion, down $432 million from the year-ago quarter. This
reflects improved delinquency trends across mortgage and credit
card portfolios as well as reduced estimated losses.
Credit Quality
JPMorgan's credit quality deteriorated during the quarter. As of
September 30, 2012, nonperforming assets were $12.5 billion, up 10%
from $11.4 billion in the prior quarter and and flat compared with
the prior-year quarter. Consumer net charge-offs increased 4% to
$2.8 billion. As a result, the consumer net charge-off rate
deteriorated to 3.10% from 2.84% a year ago.
Capital Position
JPMorgan maintained a strong capital position with Basel I Tier 1
common ratio of 10.4% as of September 30, 2012, up from 9.9% as of
September 30, 2011. The estimated Basel III Tier 1 common ratio was
approximately 8.4% as of September 30, 2012, up from 7.9% as of
June 30, 2012.
Book value per common share was $50.17 as of September 30, 2012,
compared with $48.40 as of June 30, 2012 and $45.93 as of September
30, 2011.
Our Viewpoint
The positive developments of the sector and gradually improving
macroeconomic elements helped the banking behemoth l to keep up
with its illustrious track record.
On the fundamental side, JPMorgan is trying to dodge the pressure
on net interest margin, low liquidity and a stringent regulatory
environment, which might mar its results to some extent going
forward. However, gradually improving retail banking performance
and steady credit trends in its credit card business are expected
to provide some perks.
Though there are concerns related to the impact of legal issues and
its exposure to the European economy, equity-centric activities in
the U.S. are expected to support JPMorgan's results in the upcoming
quarters with continued recovery in the capital markets.
From a risk perspective, as JPMorgan cleared the most difficult
stress test, it is for sure that the company will be able to
withstand another financial crisis.
JPMorgan shares currently retain a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the company's business
model and fundamentals, we also have a long-term Neutral
recommendation on the stock.
JPMorgan, with exposure in almost all banking businesses, is one of
the first two important bankers to kick start the third quarter
results. The release should be a significant indicator of
performance in the key banking sector.
Wells Fargo & Company
(
WFC
) is the other bank that is scheduled to release its earnings
today.
Close on the heels of JPMorgan and Wells Fargo, the other major
banks gearing to release their earnings are
Citigroup Inc.
(
C
) on October 15,
Goldman Sachs Group Inc.
(
GS
) on October 16,
Bank of America Corporation
(
BAC
) on October 17 and
Morgan Stanley
(
MS
) on October 18.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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