JPMorgan (JPMorgan) Q4 Earnings: Top on NII and High Credit Costs
Higher loan balances, rising rates, and solid market performance are all factors that drive JPMorgan’s JPM fourth-quarter 2022 adjusted earnings of $3.56 per share, which surpassed the Zacks Consensus Estimate of $3.11. These results exclude gains from Visa B shares sales and net investment securities losses in Corporate segment. We estimated earnings to be $2.98 per share.
The company reported better-than-expected earnings but shares fell more than 3% during pre-market trading. Investors are disappointed with JPMorgan’s adjusted expenses guidance and “mild recession” expectation. Other major headwinds were a slowdown in mortgage business and a slump of deal-making activities.
The company reported credit costs of $2.3B during the fourth quarter. CEO Jamie Dimon said in a statement, “The U.S. economy currently remains strong with consumers still spending excess cash and businesses healthy. However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.”
The IB business’ performance was disappointing as expected. Both equity and debt underwriting fees fell by 89% and 58% respectively. Advisory fees also fell 53% Therefore, IB fees dropped 58% from the quarter before.
Additionally, mortgage fees and related income decreased 69% to $98million as mortgage rates remained higher than 6% in fourth quarter.
Operating expenses increased during the quarter. The adjusted non-interest expenses are expected to reach $81 billion this year, according to management.
On the other hand, higher interest rates and a solid rise in loan balance (up 5% year over year) aided the bank’s net interest income (NII). Management expects NII (excluding CIB Markets NII), to be approximately $74 billion by 2023.
As expected, fixed income market revenues increased to $3.8billion during the quarter. However, equity trading numbers were disappointing at $1.9billion. The total market revenues of $5.7billion increased by 7%. We estimated equity and fixed income market revenues at $1.9 billion and $4.9 trillion, respectively.
Among other positives, Asset & Wealth Management average loan balances rose 2% from the year-ago quarter. Commercial Banking average loan balances increased 14%.
Year over year, debit and credit card volume increased by 9%. In addition, credit card loans increased 20% thanks to continuedly strong new account originations. We expected card loans to increase 14.3%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank, recorded a rise in net income on a year-over-year basis. The net income increased 6% to $11 Billion.
Revenues & Costs Rise
According to the report, net revenues reached $34.5 billion. That’s an 18% increase over last year. The Zacks Consensus Estimate for $34 billion was beaten by the top line. The metric was estimated at $32.1 billion.
The NII jumped 48% over the previous year to $20.2 million. Non-interest income fell 8% to $14.4billion due to an astronomical drop in mortgage banking fees and IB fees. However, there was some improvement in trading income. Our estimates of NII, non-interest income, and NII were $18.8 million and $13.3 respectively.
Non-interest expenses, on a managed basis, were $19 Billion up 6%. This was due to an increase in compensation expenses, technology and marketing costs. On-interest expenses were projected to reach $19.2 billion.
Credit Quality is Worsening
The net loss of credit was $1.2 million, while $2.3 billion was provision for. This was due to loan growth, deterioration in economic outlook (now includes a mild depression), and principally reflected the credit expansion. The metric was estimated at $1.8 billion.
Net charge-offs rose 61% to $887million. We estimated that NCOs would reach $889 million.
However, the value of non-performing assets (NPAs), as of December 31, 2022 was $7.2 billion. This is 13% less than the Dec 31, 2021 level.
Solid Capital Position
The estimated Tier 1 capital ratio was 14.8% at quarter-end. This is down from the 15% reported in the previous-year quarter. The estimated Tier 1 common equity capital rate (estimated) was 13.2%. This is an increase from 13.1%. According to the Dec 31, 2021 figure, total capital ratio was 16.8%.
Book value per share stood at $90.29 on December 31, 2022 as compared to $88.07 during the same period 2021. At the end of December 2022 tangible book value per common shares was $73.12, an increase from $71.53.
Our Take
New branch openings, strategic acquisitions, a global expansion plan, higher interest rates and decent loan demand are likely to keep supporting JPMorgan’s revenues. High inflation, low mortgage and IB performance, as well as disappointments in the near-term, are all major concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
JPMorgan Chase & Co. price-consensus-eps-surprise-chart | JPMorgan Chase & Co. Quote
JPMorgan currently has a Zacks rank #3 (Hold). You can view the full list. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates & Expectations of Other Banks
Morgan Stanley MS is expected to announce full-year and fourth-quarter numbers for 2022 on Jan 17.
Over the past week, the Zacks Consensus Estimate for MS’ quarterly earnings has moved 7.4% south to $1.25, implying a 39.9% plunge from the prior-year reported number.
Truist Financial TFC will report full-year 2022 numbers for the fourth quarter and full year on Jan 19.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.5% lower to $1.28. This represents a 7.3% decrease in earnings from the quarter prior to this.
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