JPMorgan Outshines Again
JPMorgan Chase & Company’s (JPM) first quarter earnings came in at 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 63 cents. This also compares favorably with earnings of 40 cents in the prior-year quarter.
Better-than-expected earnings for JPMorgan were primarily aided by higher revenues as a result of the continued strong performance of its Investment Bank, chiefly in Fixed Income Markets. All the other segments except Consumer Lending and Card Services also delivered solid results during the quarter. However, high levels of consumer credit portfolio losses and increased non-interest expense were the primary factors, which negatively impacted the results.
Behind the Headlines
Net income available to common shareholders was $3.3 billion, compared to $3.3 billion in the prior quarter and $2.1 billion in the prior-year quarter. The year-over-year increase was driven by higher net revenue and lower provisions for credit losses, partially offset by higher non-interest expense.
Managed net revenue for the quarter came in at $28.2 billion, up 5% from $26.9 billion in the year-ago quarter.
Managed non-interest revenue was $14.4 billion, up $2.9 billion from the prior-year quarter. The increase was driven by higher principal transactions revenues as well as higher trading revenue and private equity gains. Net interest income was $13.8 billion, down 11% year-over-year. The decline in net interest income was due primarily to JPMorgan’s lower loan balances.
Non-interest expense for the quarter was $16.1 billion, up 21% from $13.4 billion in the prior-year quarter. The increase was driven by higher litigation reserves, including mortgage-related litigations.
The managed provision for credit losses decreased 30% year-over-year to $7.0 billion. The total consumer-managed provision for credit losses was $7.2 billion, compared to $8.5 billion in the year-ago quarter, reflecting a lower addition to the allowance for credit losses, partially offset by a higher provision related to net charge-offs across most consumer portfolios.
Evaluation of Credit Quality
JPMorgan’s credit quality was mixed during the quarter. As of Mar 31, 2010, nonperforming assets decreased 4% sequentially to $19.0 billion. Consumer-managed net charge-offs decreased to $7.0 billion from $7.8 billion in the prior quarter. As a result, the managed charge-off rate deteriorated to 6.61% from 4.29% in the prior-quarter.
Evaluation of Capital
JPMorgan maintained a strong capital position with an estimated Tier 1 Common Capital ratio of 9.1% as of Mar 31, 2010, versus 8.8% as of Dec 31, 2009 and 7.3% as of Mar 31, 2009.
Book value per share of common stock was $39.38 as of Mar 31, 2010, compared with $39.88 as of Dec 31, 2009 and $36.78 as of Mar 31, 2009.
Since 2009, JPMorgan offered approximately 750,000 trial modifications to struggling homeowners, of which nearly 25% were approved for permanent modification.
In Feb 2010, JPMorgan announced its intention to acquire commodities trading firm RBS-Sempra Commodities for $1.7 billion. The deal is expected to close in the second quarter of 2010.
We view the prospective RBS-Sempra deal as positive for JPMorgan as its strong capital position should enable it to easily manage the business. There are likely to be meaningful revenue opportunities over time, driven by credit cards and investment products for expanding its business. Also, management expects acquisitions to produce significant cost synergies in the years ahead.
While we anticipate continued synergies from the company’s diversification and strong capital position, increasing provisions and a pressured credit quality will drag down future earnings. However, we are impressed to see some improvement in credit quality during the reported quarter.
Though most of the major banks like Citigroup (C) and Bank of America (BAC) endured extraordinary shocks due to the recession, JPMorgan was capable of maintaining consistent profitability throughout the downturn in the economy.
Following JPMorgan, the other major banks that are scheduled to report this week and next are Bank of America on April 16, Citigroup on April 19, Goldman Sachs (GS) on April 20, Morgan Stanley (MS) on April 21 and Wells Fargo (WFC) on April 21.
Read the full analyst report on “JPM”
Read the full analyst report on “C”
Read the full analyst report on “BAC”
Read the full analyst report on “GS”
Read the full analyst report on “MS”
Read the full analyst report on “WFC”
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