JP Morgan beats Street expectations

JP Morgan reports $0.28 EPS for the second quarter, reduced by $0.27 from TARP repayment and $0.10 from an FDIC special assessment, but still way beyond the 4 cents expected by analysts.  This earnings per share translates to total income of $2.7bn, 36% higher from a year ago.

The firm reported record revenue for the quarter of $27.7 billion, up 41% from 2008, mainly from investment banking fees and fixed income revenue as well as strong growth in its commercial banking segment.

Tier 1 capital ratio is higher at 9.7%, up from 9.2%, although lower than 11.4% from Q1.

Despite the tough environment, the bank also extended approximately $150bn in new credit to consumers, companies, small businesses etc.  There were also 138,000 mortgage modifications that were approved, helping prevent up to 565,000 foreclosures from happening within the last 2 years.

On the Q2 results of the firm, CEO Jamie Dimon closed his statement saying: “While we do not know if the economy will deteriorate further, we feel confident that, with our strong capital and reserve levels and significant earnings power, we can continue to reinvest in our businesses and do well for our clients, communities and shareholders over the long term.”

More in a bit after I go through the whole earnings release. Or you can go through the report yourself HERE (PDF).

——

(cont).

Investment Banking
Except for a 10% reduction in debt underwriting fees, all other fees from its investment banking arm increased.

Provisions for credit losses were higher than from a year earlier – $871m vs. $398.  Nonperforming loans were double last quarter’s – $3.5bn vs. $1.7bn.

Retail Financial Services

  • Most notable were the decline in net income of 97%, the positive contribution of the WaMu transaction to its revenue stream, as well as the higher provision for credit losses due to home equity and mortgage loan portfolios.
  • Retail banking income was higher by 44% from last year and 12% from Q1, again citing WaMu as a contributing factor. Net revenue jumped up by 65%.
  • Average total deposits also grew 63% from last year, only 1% from Q1. Deposit margin also slightly grew.
  • It also spoke of successful completion of the first phase of WaMu deposit conversions where nearly 3 million accounts were migrated onto the Chase deposit platform.
  • The consumer lending branch, on the other hand, lost $955 million, almost 3 times Q1’s figure. Declining MSR risk management results, narrower spreads and lower loan balances were some of the reasons cited for the loss. The loss was offset by its revenues, up 45% from last year.

Card Services
It’s about the same story for the firm’s card services where higher revenue (up 29%) offsets the loss of $672, driven by higher provision for credit losses.  There were 2.4 million net accounts that were opened in the period but its ROE still fell to a negative 18%, from last year’s positive 7%.

Commercial Banking
It is a slightly better result for the commercial banking part of the firm where both income and revenue were up.  Only a higher provision for credit losses affected the result, due to a still weak credit environment.

Treasury and Securities Services
The department saw both revenue and income drop due to lower net revenue, market depreciation as well as lower securities lending balances (due to declines in asset valuations and demand).

Asset Management
Net income was 11% lower from 2008 again due to lower revenue, while net revenue dropped 4% resulting from lower market levels and lower placement fees partially offset by higher valuations of seed capital investments.  Both private banking revenue and assets under management and supervision all saw reduction.

Corporate/Private Equity
JP Morgan picked up much higher revenue from its corporate division, swinging the income from a loss of $262m to an income of $808m.  They are caused by higher levels of trading and investment income as well as the gain from selling MasterCard shares.

In the overall, revenue was higher than from both Q1 and 2008, provision for credit losses were more than double last years but about 5% lower from Q1.  Noninterest expense was also slightly higher by the bottomline is still positive, and higher than from both periods.

Some quick thoughts: Despite the better than expected results, from both the revenue and income fronts, I don’t think there’s much good news to be had from JP Morgan’s numbers.  The results from Goldman Sachs, with much less exposure to the consumers, offers us a reason to celebrate.  But I refuse to think it’s the same case with JP Morgan, which has a big chunk of their operations coming from the consumers.

It’s cheers and beers for the higher revenues, increased lending, and prevented foreclosures from mortgage modifications, but it is otherwise a thumbs down for the higher provisions for losses, which do not really provide us with a hopeful outlook for the coming months.  That tells us that yes, maybe the consumers are saving more (which is not a completely positive thing) with more deposits on one hand, but on the other, the higher provisions do not alleviate worries of rising consumer defaults and emphasize the looming trouble with commercial real estate. I can only think of what is in store for us tomorrow when C and BAC report their numbers.

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