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JPMorgan (JPM) Beats on Q1 Earnings, Stock Up Pre Market

JPMorgan Chase & Co.’s JPM first-quarter 2016 earnings of $1.35 per share surpassed the Zacks Consensus Estimate of $1.26, which was pretty conservative given the number of downward revisions over the last couple of months. However, the figure reflects a 7% decline from the year-ago period, indicating the impact of challenging market conditions.



Though the quarter witnessed a decent decrease in expenses and negligible legal costs, weak trading and significantly higher provisions (mainly pertaining to energy sector lending) hurt the results.

Notably, shares of JPMorgan gained more than 2.5% in the pre-market trading. Perhaps, the earnings beat led to positive investor sentiments. However, we will get the actual picture after the full day’s trading session once investors and analysts go through the core results

The results included after-tax wholesale credit costs of $479 million (or 13 cents a share). Excluding this item, the company would have earned $1.48 per share.  

Net revenues at the investment banking and asset management units dropped 15% to $8.1 billion and 1% to $3 billion, respectively. Both commercial banking and consumer and community banking divisions witnessed 4% revenue growth.

The overall performance of its business segments in terms of net income generation was not very impressive. All segments except Consumer & Community Banking and Asset Management witnessed a year-over-year decline in net income. Consumer & Community Banking net income increased 12% year over year. Asset Management earned 17% higher than the prior-year quarter. Net income for Corporate & Investment Bank and Commercial Banking declined 22% and 17%, respectively, while the Corporate segment incurred net loss.  

Among the positives, credit card sales volume improved 8% and merchant processing volume grew 12%. Commercial Banking average loan balances increased 13% and Asset Management average loan balances rose 7%.

Quarter in Detail

Managed net revenue of $24.1 billion in the quarter was down 3% from the year-ago quarter. However, it compared favorably with the Zacks Consensus Estimate of $23.9 billion. Lower fixed income markets’ revenue and investment banking fees led to the fall in top line.

Non-interest expense was $13.8 billion, 7% lower than the year-ago quarter. The decline was primarily due to lower legal expense and lower compensation.

Credit Quality

JPMorgan’s credit quality deteriorated during the quarter. As of Mar 31, 2016, nonperforming assets were $8 billion, up 4% from $7.7 billion a year ago.

Net charge-offs increased 6% year over year to $1.1 billion. Further, provision for credit losses increased 90% year over year to $1.8 billion primarily owing to increases in wholesale reserves versus reserve releases in the year-ago quarter.

Capital Position

JPMorgan’s capital ratios were impressive. Tier 1 capital ratio (estimated) was 13.5% as of Mar 31, 2016 compared with 13.1% as of Mar 31, 2015. Tier 1 common equity capital ratio (estimated) was 11.8% as of Mar 31, 2016, up from 10.7% as of Mar 31, 2015. Total capital ratio came in at 15.1% (estimated) as of Mar 31, 2016 compared with 13.6% as of Mar 31, 2015.

Book value per share was $61.28 as of Mar 31, 2016 compared with $60.46 as of Dec 31, 2015 and $57.77 as of Mar 31, 2015. Tangible book value per common share came in at $48.96 as of Mar 31, 2016 compared with $48.13 as of Dec 31, 2015 and $45.45 as of Mar 31, 2015.

Bottom Line

A setback in trading activity, and equities and bond businesses along with the energy sector debacle were largely responsible for undermining the big banks this time around and JPMorgan’s results are a reflection of the same. However, keeping core expenses at check, the company braved the palpable weakness to a great extent.

Currently, JPMorgan carries a Zacks Rank #5 (Strong Sell).

Among the other major banks, Wells Fargo & Company WFC and Bank of America Corp. BAC are scheduled to release their results on Apr 14, and Citigroup Inc. C will report on Apr 15.

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