ii view: high rates help JP Morgan stock break record

Fourth-quarter results to the 31 December 

• Revenue up 12% to $39.9 billion
• Net income down 15% to $9.3 billion
• Reported earnings per share down 15% to $3.04
• Quarterly dividend unchanged from Q3 at $1.05 per share

Chief executive Jamie Dimon said:

“Our record results in 2023 reflect over-earning on both NII and credit, but we remain confident in our ability to continue to deliver very healthy returns even after they normalise.

“Quantitative tightening is draining over $900 billion of liquidity from the system annually, and we have never seen a full cycle of tightening. And the ongoing wars in Ukraine and the Middle East have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost. These significant and somewhat unprecedented forces cause us to remain cautious.”

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ii round-up:

US banking giant JPMorgan Chase & Co (NYSE:JPM) today reported revenues and earnings which topped Wall Street estimates, as elevated interest rates pushed net interest income higher. 

Aided by its 2023 acquisition of First Republic Bank, fourth-quarter revenues climbed 12% to $39.9 billion. That meant adjusted earnings, which strip out a $2.9 billion government fee in support of last year’s regional banking crisis, hit $3.97 per share. JPM beat revenue forecasts for $39.7 billion and earnings of $3.32 per share. 

Shares in the Dow Jones listed company rose by more than 2% in early US trading having come into this latest news up by just over a quarter in 2023. That’s similar to Asia-focused HSBC Holdings (LSE:HSBA) and better than a 13.7% improvement for the Dow Jones index itself last year.   

Higher net interest income fed into a 15% gain in revenue for JPM's traditional banking business to $18.1 billion, or by 8% excluding First Republic. Profit for the traditional banking division climbed 5% to $4.8 billion. Bad debt provisions totalled $2.2 billion, up 19% year-over-year.  

Revenue at its Corporate and Investment Banking division rose 3% to $10.9 billion, aided by higher fees for debt and equity underwriting. Overall divisional profit fell by close to a quarter to $2.5 billion, hindered by a 50% increase in credit loss provisions.   

The bank’s capital cushion, or CET1 ratio rose to 15% from the previous quarter’s 14.3%. Meanwhile, assets under management for its wealth division increased 24% to $3.4 trillion, aided by net fund inflows and higher markets. 

The bank previously declared a quarterly dividend of $1.05 per share, unchanged from the previous quarter. First-quarter results are scheduled for 12 April. 

ii view:

Tracing its history back to 1799, the New York headquartered bank today employs around 300,000 people. Its stock market value of over $490 billion sits comfortably ahead of rivals Bank of America at around $265 billion and Well Fargo at $178 billion. Its home North America market generates its biggest slug of sales at around three-quarter of overall revenues, with the combined Europe and Africa region next at over a tenth. 

For investors, accompanying management comments flagging potentially stickier inflation and therefore higher rates for longer are not to be ignored. A full wash through of higher borrowing costs could yet result in further credit provisions. Costs generally for businesses such as IT and staff remain heightened, while an estimated price-to-net value of around 1.7 times is comfortably above most rivals, suggesting the shares are not cheap. 

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On the upside, heightened interest rates have increased overall revenues and net interest income. The benefits of a diversified business model have regularly seen strong conditions for one offsetting challenges at the other. The group’s finances remain robust with a healthy increase in its CET1 ratio, while a forecast dividend yield of around 2.5% is not to be ignored.   

On balance, and despite ongoing risks, this well managed US banking titan looks to remain worthy of its place in diversified investor portfolios.

Positives: 

• Business diversity
• Robust balance sheet

Negatives:

• Economic outlook uncertainty
• Heightened costs

The average rating of stock market analysts:

Buy