Shares of JPMorgan Chase, (JPM – Free JPMorgan Chase Stock Report) which have been trading close to their 12-month high lately, slipped modestly even after the company, one of the largest banks in the United States and a member of the Dow 30, turned in decent September-quarter results. The most recent performance was aided by higher interest rates, a benign credit climate, and the company's ongoing efforts to build up its businesses. All told, September-period reported earnings of $1.76 a share exceeded both the $1.58 logged in the comparable quarter of 2016 and our estimate of $1.65. Revenues increased 3%, year to year, powered mainly by a 10% advance in net interest income that was partly offset by a 4% decline in fee-based revenues. Meanwhile, expenses in the quarter were flattish.
JPMorgan's Consumer & Community Banking segment drove most of the earnings advance. Although mortgage revenues fell 17%, increases in net interest income, credit card, and loan and deposit fees more than offset the shortfall. Expenses about matched the year-earlier tally. The company added about $50 million to its reserve for credit card loan losses, reflecting recent vintages. However, card loan charge-offs remain well below historical levels.
The company's Corporate & Investment Banking division was its weak link. Segment profits declined 13%. Fixed-income markets revenues fell 27% compared to a very strong year-earlier performance, reflecting lower market volatility and tighter credit spreads. There were some bright spots, however, including strong advisory, treasury, and lending revenues. Expenses moderated slightly due to lower compensation costs. The company also released some reserves for loans to oil and gas companies, since losses on these loans have proven less troublesome than anticipated.
JPMorgan's other two business groups, Commercial Banking and Asset & Wealth Management, posted profit increases of 13% and 21%, respectively. Commercial banking continues to benefit from investments in recent years in bankers, support staff, and technology. Asset management revenues were driven by strong equity market levels and wider deposit spreads.
Looking ahead to the December quarter and 2018, we expect the earnings outlook to remain mostly positive. Loan growth, which has exceeded industry rates recently, might moderate but, like most banks, JPMorgan's net interest income should benefit as interest rates rise. And while origination costs related to JPMorgan's popular Sapphire credit card may slip further, asset management and commercial banking profits ought to continue to grow nicely. To be sure, mortgage revenues may remain soft. Prospects for fixed-income markets revenues are uncertain since they are influenced by market volatility.
In all, owing to JPMorgan's better-than-expected results in the past two quarters, we have raised our share-net estimates for 2017 and 2018 by $0.20 and $0.10, respectively, to $6.95 and $7.20. Note that the company says it doesn't expect any significant financial impact from the recent hurricanes.
As for the stock, the current price discounts nearly all of its total return potential to 2020-2022. That said, dividend growth looks to remain healthy, and the decent dividend yield may interest income-oriented investors.
About The Company: JPMorgan Chase & Co. is a global financial services company offering a variety of services with operations in over 60 nations. 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.
