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Is Fed's 'No Rate Hike' Decision a Concern for JPMorgan?

On Sep 22, 2015, we issued an updated research report on JPMorgan Chase & Co.JPM . Like all asset sensitive banks in the country, JPMorgan is facing pressure on net interest income owing to low interest rate environment.

Notably, the Federal Reserve's decision to hold on to the current 0-0.25% rate has worsened the matter. For 2015, management expects net interest margin to range from stable to marginally up based on a continued low interest rate environment.

Apart from this, JPMorgan's non-interest income remains strained. In 2015, management projects Mortgage Banking non-interest revenues to be down nearly $1 billion due to lower servicing revenues and repurchase benefits. Further, the company anticipates a decline in trading revenues for the current quarter.

Also, with the enforcement of new banking regulations, we believe there will be additional pressure on fee income in the near term. Hence, overall revenue growth is expected to be muted in the upcoming quarters.

These concerns are also reflected in the estimate revision trend of analysts. Over the last 30 days, the Zacks Consensus Estimate fell 1 cent to $5.86 per share for 2015; while for 2016, it has remained stable at $6.46 per share.

However, JPMorgan is undertaking several initiatives that will go a long way in supporting its financials. The company intends to rationalize and consolidate its branch network with an increased focus on automation. Further, JPMorgan remains focused on acquiring the industry's best deposit franchise and enhancing its loan portfolio. Management projects core loan growth to be 10% in 2015, driven by overall improvement in macroeconomic factors and growing demand for commercial loans.

Therefore, we believe JPMorgan's plans to restructure operations and focus on loan growth will somewhat alleviate the pressure on top line led by continued low rates.

JPMorgan currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Better-ranked major banking stocks include SunTrust Banks, Inc. STI , U.S. Bancorp USB and The PNC Financial Services Group, Inc. PNC . All these stocks hold a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

SUNTRUST BKS (STI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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