ii view: JP Morgan earnings boosted by US economic growth

Exposure to buoyant M&A, plus a bigger quarterly dividend and yield of over 2%. We assess prospects. 

Third-quarter results to the 30 September 

• Net revenue up 2% to $30.44 billion
• Net income up 24% to $11.69 billion
• Earnings per share up 28% to $3.74

Chief executive Jamie Dimon said:

“JPMorgan Chase delivered strong results as the economy continues to show good growth - despite the dampening effect of the Delta variant and supply chain disruptions.

“We are making important investments, including strategic, add-on acquisitions that will drive our firm’s future prospects and position it to grow and prosper for decades.”

ii round-up:

US banking mammoth JPMorgan Chase & Co (NYSE:JPM) today reported forecast-beating earnings as it again returned cash from previously set aside bad debt pandemic provisions, while also benefitting from an ongoing boom in merger and acquisition (M&A) activity.

Credit reserve releases of $2.1 billion helped propel a 28% jump in earnings per share (EPS) year-over-year to $3.74, exceeding forecasts for closer to $3 per share. Higher advisory and equity underwriting fees also helped drive a 45% jump in investment banking revenues. 

JP Morgan shares retreated by more than 2% in early US trading, having more than doubled since pandemic induced market lows back in March 2020. Shares for fellow banking and investment banking group Barclays (LSE:BARC) have risen by more than 130% over that time. The UK's Lloyds Bank (LSE:LLOY) is up by close to 60%. 

Equity markets-related revenues at the investment banking and markets division climbed by 30% to $2.6 billion, although were offset by a 20% fall in fixed income to $3.7 billion. Expenses at the division proved flat, with technology investments and new hires offset by lower legal expenses. 

At its consumer banking business, weak lending growth highlighted by management earlier in the year continued. Home lending revenue fell by nearly a fifth to $1.4 billion year-over-year, while card and auto revenues declined by 9% to just under $5 billion. 

Assets under management for its wealth division rose 17% to $3 trillion, fuelled by higher markets and net inflows.

In September, the New York headquartered bank declared a quarterly dividend of $1 per share, up from the previous quarter's 90 cents. The bank also bought back $5 billion of its own stock over the period, down from $5.9 billion in the second quarter. Buybacks were previously suspended under pandemic caution.

ii view:

Tracing its roots back to 1799, JP Morgan today operates across both traditional consumer and corporate banking, along with investment banking and asset management. North America generates around three-quarters of its revenues, leaving it as something of a bellwether for the US economy, followed by Europe, the Middle East and Africa at around 15% and Asia most of the balance. 

For investors, elevated inflation and an uncertainty economic outlook now set the backdrop for the group’s banking customers. Stretched US government finances and an ongoing political war over borrowing ceilings and levels could also eventually result in tax increases. 

But early and heavy bad-debt provisioning and caution under the pandemic continues to be rewarded as customers have suffered less than expected. The benefits of a diversified business model covering both traditional and investment banking remains evident, while shareholder returns are back in focus following the peak of the pandemic. In all, and given both ongoing investment in technology and a considered robust balance sheet, JP Morgan shares look to remain worthy of ongoing investor support for the long term. 

Positives: 

• Business diversity
• Investing in technology

Negatives:

• Ongoing pandemic uncertainty
• Low interest rates are broadly bad for bank profitability

The average rating of stock market analysts:

Buy