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JPMorgan (JPM) Q4 Earnings Beat on M&A Boom, Reserve Release

Robust advisory business, reserve release and a rise in loan demand drove JPMorgan’s JPM fourth-quarter 2021 earnings of $3.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.01.

Results included net credit reserve releases. Excluding this, earnings came in at $2.86 per share.

Despite reporting better-than-expected earnings, shares of the company have lost almost 3.8% in pre-market trading. Investors seem to be disappointed with JPMorgan’s trading business performance and 2022 expense outlook. Equity markets revenues and fixed income markets revenues fell 2% and 16%, respectively, on a year-over-year basis. So, total markets revenues of $5.3 billion declined 11%.

During the quarter, operating expenses recorded an increase. Management expects adjusted non-interest expenses to be $77 billion this year.

Also, mortgage fees and related income plunged 59% to $315 million. Further, Commercial Banking average loan balances were down 2% year over year.

During the fourth quarter, the company reported net reserve releases of $1.8 billion on the back of “continued resilience in the macroeconomic environment.”

Regarding investment banking (“IB”) performance, equity and debt underwriting fees rose 12% and 14%, respectively. Continued stellar deal-making activities across the globe during the quarter led JPMorgan to record an 86% surge in advisory fees. Hence, IB fees jumped 37% from the prior-year quarter. Also, the company ranked #1 for global investment banking fees with a 9.5% wallet share for 2021.

While lower rates continued to hurt the bank’s interest income, it was more than offset by a rise in loan balance (up 6% year over year and 3% from the prior quarter).

Among other positives, Asset & Wealth Management average loan balances grew 18% from the year-ago quarter. Debit and credit card sales volume increased 26%, reflecting a steadily improving consumer confidence and economic outlook.

The overall performance of JPMorgan’s business segments, in terms of net income generation, was dismal. All segments, except Asset & Wealth Management, reported a decrease in net income on a year-over-year basis.

Thus, net income decreased 14% from the prior-year quarter to $10.4 billion. Excluding the above-mentioned reserve releases, net income was $9 billion.

Revenues Stable, Costs Rise

Net revenues as reported were $29.26 billion, relatively stable year over year. The top line lagged the Zacks Consensus Estimate of $29.95 billion.

Net interest income grew 3% year over year to $13.6 billion.

Non-interest income declined 3% to $15.6 billion, primarily due to a fall in mortgage banking and related fees, card income and principal transactions. These were partially offset by solid IB performance.

Non-interest expenses (on managed basis) were $17.9 billion, up 11%. This upswing was mainly due to a rise in compensation expenses.

Credit Quality Improves

Provision for credit losses was a net benefit of $1.3 billion compared with a benefit of $1.9 million in the prior-year quarter. Further, net charge-offs plunged 48% to $550 million.

As of Dec 31, 2021, non-performing assets were $8.3 billion, down 23% from Dec 31, 2020 level.

Solid Capital Position

Tier 1 capital ratio (estimated) was 15% at the fourth quarter-end, on par with the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 13%, down from 13.1%. Total capital ratio was 16.8% (estimated) compared with 17.3% as of Dec 31, 2020.

Book value per share was $88.07 as of Dec 31, 2021, compared with $81.75 in the corresponding period of 2020. Tangible book value per common share was $71.53 at the end of December, up from $66.11.

Share Repurchase Update

During the quarter, JPMorgan repurchased shares worth $1.9 billion.

Our View

New branch openings, strategic acquisitions, global expansion plan and robust IB performance are likely to continue supporting JPMorgan’s revenues. A rise in loan balance is a major tailwind as the economy re-opens. However, lower rates and disappointing trading and mortgage banking performance are near-term concerns.
 

JPMorgan Chase & Co. Price, Consensus and EPS Surprise

JPMorgan Chase & Co. price-consensus-eps-surprise-chart | JPMorgan Chase & Co. Quote

JPMorgan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates & Expectations of Other Major Banks

The PNC Financial Services Group PNC is slated to report fourth-quarter and full-year 2021 results on Jan 18.

Over the past 30 days, the Zacks Consensus Estimate for PNC Financial’s quarterly earnings has moved marginally lower to $3.61. This indicates a 10.7% rise from the prior-year quarter.

Truist Financial TFC is scheduled to announce fourth-quarter and 2021 numbers on Jan 18.

Over the past 30 days, the Zacks Consensus Estimate for Truist’s quarterly earnings has moved almost 1% lower to $1.26, suggesting a 6.8% increase from the prior-year reported number.

Bank of America BAC is scheduled to announce fourth-quarter and full-year 2021 numbers on Jan 19.

Over the past 30 days, the Zacks Consensus Estimate for Bank of America’s quarterly earnings has moved 2.6% south to 96 cents, implying a 28.8% jump from the prior-year reported number.


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