JPMorgan Chase & Company (JPM – Free JPMorgan Stock Report), the largest bank in the United States and a member of the Dow 30, has reported earnings of $2.82 a share for the June quarter, compared to $2.29 in the like period of 2018 and our estimate of $2.55. Results were boosted by $0.23 a share of tax benefits, without which the company would have earned $2.59. The stock initially slipped slightly in Tuesday morning trading, as investors appear concerned about the tougher operating environment and may not be giving the company credit for the tax benefits, but subsequently ticked up modestly.
On the whole, the quarter turned out much as expected. Results were led by the Consumer & Community Banking division, where revenue growth of 11%, reflecting higher net interest income and auto lease volumes, far outpaced expense growth of 4%. Consumer credit costs remained flat, as increased credit card and home loan charge-offs were offset by a reduction in mortgage loan loss reserves, reflecting higher home prices and lower delinquencies.
Profits in JPMorgan's other three business segments fell short of the year-earlier figures. The Corporate & Investment Bank division a faced tough comparison with a very strong year-earlier quarter. The segment's profits fell 8%. Revenues slipped 3%, hurt by declines of 9% in investment banking and 6% in underlying markets revenues. Expenses rose modestly. Management indicated that the investment banking pipeline remains healthy, albeit not as strong as in 2018.
Profits in the smaller Commercial Banking and Asset & Wealth Management divisions declined 8% and 5%, respectively, with the former hurt by lower net interest income and investment banking revenues, and the latter reflecting the absence of gains recorded in the year-earlier period and a slight increase in expenses, including investments in the business.
Meanwhile, JPMorgan has lowered its 2019 outlook for firm-wide net interest income, from over $58.0 billion to $57.5 billion, owing to its expectation that the Federal Reserve will lower short-term interest rates in the second half. Too, investment banking activity typically slows in the summer months, so the division's weak performance probably continued into the September term. Even so, JPMorgan's revenue mix is highly diversified, and its strong market shares in businesses like credit card lending ought to continue to work in its favor should global economic activity moderate further. Including the June-quarter tax benefits, but assuming slightly weaker second-half results, our 2019 share-net estimate increases from $10.00 to $10.15. But we have tentatively lowered our 2020 earnings call from $10.60 a share to $10.30, given the uncertain global operating climate.
As for the stock, which has had a fairly good run since 2012, it still has some near-term appeal, but doesn't stand out for total return potential to 2022-2024. Meantime, income-oriented investors should note that the dividend yield is attractive, and management plans to raise the quarterly payout 12.5%, to $0.90 a share, in the September term, pending board approval.
About The Company:JPMorgan Chase & Co. is a global financial services firm with assets of $2.6 trillion and operations worldwide. The company is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management. 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.
