Proving pessimists wrong,
JPMorgan Chase & Company
) came out with a positive earnings surprise of about 16% for the
fourth quarter. The banking giant concluded the year of its
'London Whale' trading fiasco on a strong note with fourth
quarter earnings per share of $1.39, which surpassed the Zacks
Consensus Estimate of $1.20 and the year-ago earnings of 90
This represents the fourth straight quarter with a positive
earnings surprise for JPMorgan.
Despite the impact of a number of legal and regulatory issues as
well as fundamental pressures like low interest rate and weak
loan demand, JPMorgan's fourth quarter earnings beat reflects the
underlying strength in its business segments and signals the good
health of the sector.
Additionally, favorable macroeconomic elements, including strong
capital market activities and accelerating housing market
recovery, helped JPMorgan overcome its difficulties to a great
JPMorgan's earnings per share for the reported quarter comprised
certain significant nonrecurring items. These include a detriment
of 14 cents for mortgage-related matters in Mortgage Banking, a
loss of 9 cents from debit valuation adjustments (DVA) in
Corporate & Investment Bank, a benefit of 16 cents from tax
adjustments in Corporate and an advantage from reduced mortgage
loan loss reserves in Real Estate Portfolios of 11 cents. All
these are after-tax numbers. Excluding these items, JPMorgan
earned $1.35 per share.
Results for the reported quarter primarily benefited from
improved revenues and a slowdown in provision for credit losses,
marginally offset by higher noninterest expenses. Performances by
the company's wholesale loan portfolios and credit card portfolio
were impressive as credit conditions remained favorable.
Most noticeably, the Corporate/Private Equity segment showed
solid improvement during the quarter with more than two-fold net
income growth over the prior and prior-year quarter. All the
other segments also showed decent improvement. With a healthy
market share, Corporate & Investment Bank maintained its #1
rank in Global Investment Banking fees.
For full-year 2012, earnings were $5.20 per share, up 16% year
over year. This was also 4% ahead of the Zacks Consensus Estimate
Quarter in Detail
Managed net revenue of $24.4 billion in the quarter was up 10%
from the year-ago quarter. The figure also compared favorably
with the Zacks Consensus Estimate of $24.3 billion.
For the full year, managed net revenue came in at $99.9 billion,
almost in line with the year-ago revenues. This compares
favorably with the Zacks Consensus Estimate of $97.9 billion.
Managed non-interest revenue for the quarter increased 32% from
the year-ago period to $13.1 billion. The increase was backed by
higher mortgage fees and related income, higher principal
transactions and an increase in investment banking fees.
Net interest income fell 8% from the year-ago quarter to $11.3
billion, primarily reflecting the impact of low interest rates.
Non-interest expense was $16.0 billion, up 10% from the year-ago
quarter. Non-interest expense included $900 million pre-tax
expense for mortgage-related matters.
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Managed provision for credit losses decreased 70% from the
year-ago quarter to $656 million. Total consumer provision for
credit losses was $1.1 billion, down $745 million from the
year-ago quarter. This reflects improved delinquency trends in
the mortgage portfolio as well as reduced estimated losses,
primarily in the home equity portfolio.
JPMorgan's credit quality improved during the quarter. As of Dec
31, 2012, nonperforming assets were $11.7 billion, down 6% from
$12.5 billion in the prior quarter. Consumer net charge-offs
decreased 31% year over year to $1.8 billion. As a result, the
consumer net charge-off rate improved to 1.99% from 2.74% a year
JPMorgan maintained a strong capital position with Basel I Tier 1
common ratio of 11.0% as of Dec 31, 2012, up from 10.4% as of Sep
30, 2012 and 10.1% as of Dec 31, 2011. The estimated Basel III
Tier 1 common ratio was 8.7% as of Dec 31, 2012, up from 8.4% as
of Sep 30, 2012.
Book value per common share was $51.27 as of Dec 31, 2012,
compared with $50.17 as of Sep 30, 2012 and $46.59 as of Dec 31,
In Our View
In addition to its fundamental strength, the positive
developments of the sector and gradually improving macroeconomic
elements helped JPMorgan keep up with its illustrious track
On the other hand, the banking behemoth 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 and
investment banking performance, and better 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, the ongoing recovery in
the capital markets will continue to support JPMorgan's results
in the upcoming quarters.
JPMorgan shares currently retain a Zacks Rank #3 (Hold).
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 the
second among the banking big shots to report fourth-quarter
earnings. Therefore, the release is going to be a significant
indicator of performance in the key banking sector.
Wells Fargo & Company
) was the first mega bank to kick-start the fourth-quarter
banking results on Jan 11.
Among other Wall Street majors,
Goldman Sachs Group Inc.
) has released its earnings today.
Bank of America Corporation
) will report on Jan 17 and
) on Jan 18.