JPMorgan Chase Slips On Mix Results

A Great Quarter For JPMorgan Despite Mixed Results

JPMorgan Chase NYSE: JPM set the tone for the second-quarter earnings cycle with a better-than-expected report. The caveat is that, while the headline figures all beat their consensus target, the internal metrics are a little mixed. The takeaway for investors is that consumer banking is strong, the company is more than well-capitalized, and the outlook for the second half of the year is still bright if a little dimmer than it was before. 

JPMorgan: A Top-line Beat Despite Fixed-Income Weakness 

JPMorgan reported strong systemwide top-line results despite a market downturn in fixed-income results. The company posted $30.50 billion in net consolidated revenue which beat the consensus by $790 million dollars or 260 basis points but declined on both a sequential and year-over-year basis. The company’s revenue is down 5.4% sequentially and 7.9% from last year but still managed to rise 5.7% in the 2-year comparison which we find to be the most compelling figure.

On a segment basis, wealth management was strongest with a 1% sequential gain and 20% year-over-year gain. Commercial Banking was the second strongest with a 4% sequential gain and 3% year-over-year gain in revenue. Consumer banking is also relatively strong with a 2% sequential gain and a 3% gain from last year. Consumer and Community banking was bolstered by strong results in the business sub-segments that were offset by a decline in home and auto loans. That news is both good and bad as it shows strength and small businesses the weakness in both home and auto sales, two of the driving forces of the current economy.

Corporate Investment Banking was the only area of real weakness and that firmly centered in the fixed-income market. Investment banking grew 1% and equities-based revenue grew by 13% while the fixed-income sub-segments declined 44%.

Moving down to the earnings the results are just as good and just as mixed. The good news is that GAAP earnings of $3.78 beat by $0.60 and strengthen the company's ability to pay its dividend, increase the distribution, and engage in share buy-backs. The caveat is that credit cost provided a net benefit of $2.3 billion or $0.75  of EPS because credit charge-offs were far less than expected. That allowed the company to release $3 billion of net credit reserves, the bad news is that adjusted earnings would have fallen short of the consensus. 

JPMorgan Chase Lowers Guidance

JP Morgan didn't give formal guidance for earnings and revenue but it did give guidance for net interest income. The company reports a net interest income of $25.63 billion in the first half and expects $52.50 billion for the full year. The new guidance is $2.50 billion lower than the original guidance due to negative consumer loan growth and will drag on results in the third and fourth quarters.

Shares of JPMorgan Chase fell almost 1% in early pre-market trading and may move lower but we don't think investors should run for the exit yet. Price action is still well above recent support marked by a double bottom reversal pattern at the $150 level. Price action may move down to retest this level in the near term, but we do not expect to see it broken. Assuming support is confirmed at $150 or higher, we expect to see shares of the stock trend sideways over the summer and then move higher later in the year.