JPMorgan Chase (JPM – Free JPMorgan Stock Report), the largest bank in the United States and a Dow-30 component, has reported record June-quarter earnings that management indicated were aided by a very constructive economic environment. A lower tax rate, the result of the Tax Cuts and Jobs Act passed in late 2017, also contributed to the better-than-anticipated results. The stock after an initial dip, perhaps reflecting concerns that the ongoing trade wars and a more restrictive U.S. Central Bank could begin to weigh on the performance of the expanding domestic economy later this year or in 2019, has rebounded in intra-day trading and is now modestly higher.
The big bank earned $2.29 a share in the period, a 35% advance over the $1.70 logged in the year-earlier quarter. The year-to-year comparison would have been slightly wider absent a credit card rewards adjustment of $330 million recorded this year and a legal benefit logged in the 2017 June term. Results also compared very well with our share-net estimate of $2.10.
Consumer & Community Banking profits surged 53%, with revenues up 10%, driven by a 7% increase in core loans, wider deposit margins, and a 6% increase in card, merchant services, and auto revenues, despite the rewards card adjustment. Management attributed the double-digit growth in client investment assets, card sales, and merchant processing volumes to the health of the consumer sector in the United States. Expenses rose 6% and credit costs declined.
The Corporate & Investment Bank segment posted an 18% profit advance, supported by double-digit revenue growth nearly across the board, with particular strength in investment banking, treasury services, and equity markets revenues. Expenses included performance-based compensation and investments in technology.
JPMorgan's two smaller business divisions, Commercial Banking and Asset & Wealth Management, both posted profit advances of 21%. Commercial Banking revenues benefited from wider deposit margins and a greater number of large investment banking transactions. In the Asset & Wealth Management segment, assets under management rose 8%, driven by inflows into long-term and liquidity products and higher market levels.
Looking ahead, management says it is seeing good global economic growth, especially in the United States. JPMorgan also has strong positions in the credit card and investment banking arenas. And like most banks, it should benefit from additional likely interest rate hikes by the Federal Reserve. The company recognized that the banking business is cyclical, but expressed confidence that it can manage through an eventual slowdown in economic growth.
Given the strong June-quarter results, we are raising our share-net estimate for 2018, from $8.75 to $9.00, and our 2019 call from $9.25 to $9.50.
Although we like JPMorgan's story, the stock is already trading around the lower end of our 3- to 5-year Target Price Range and doesn't stand out for the pull to 2021-2023. But the dividend yield, based on a payout that the company intends to raise in the September quarter, may be of interest to income-oriented accounts.
About The Company:JPMorgan Chase & Co. is a global financial services company offering a variety of services with operations in over 60 nations. As of 12/31/17, the company had 5,130 branches. Operational divisions include investment banking, treasury & securities services, asset management, commercial banking, retail financial services, card services, and private equity investment. The company had previously merged with Washington Mutual in September, 2008, Bank One in July, 2004, and Chase Manhattan in the final month of 2000.
-Theresa Brophy
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
