If JPM and its "fortress" balance sheet and business model are supposed to represent Q1 earnings for US banks, it will not be a good start to the year. While EPS beat expectations solidly, coming at $1.59 on expectations of $1.39 print, this was largly driven by a bigger than expected loan loss reserve release in its real estate portfolios ($650MM pretax), and card services ($500MM pretax), which was the largest combined release number since the $2 billion reduction in Q1 2012. This took down total JPM total loan loss reserves to $20.8 billion, down from $21.9 billion in Q4, and down $5.1 billion from the $25.9 billion a year ago. This happened even though JPM's NPL declined far more modestly, from $10.7 billion to just $10.4 billion. It was the revenue of $25.12 that missed expectations of $25.85, down from $26.05 billion a year ago, and which is the bigger issue for the bank, driven by disappointing trading results with fixed income markets revenue of $4.8 Billion, down 5% YoY, equity markets revenue of $1.3 Billion, down 6% YoY, and Securities Services revenue of $974mm, flat YoY. Not surprisingly in order to maintain expenses, headcount continue to decline from 258,753 to 255,898.
Those curious how the infamous CIO prop trading desk did, here it is straight from the horse's mouth: "Treasury and CIO reported net income of $24 million, compared with a net loss of $227 million in the prior year. Net revenue was $113 million, compared with a loss of $233 million in the prior year. Net revenue included net securities gains of $503 million from sales of available-for-sale investment securities during the current quarter. Net interest income was a loss of $472 million due to low interest rates and limited reinvestment opportunities."
Curiously, VaR plunged from $106 to $62 - another excel copy/paste error?
Net Interest margin, firmwide and core, declined by 3 and 2 bps respectively, as the ongoing encroachment of the long-end by the Fed does nothing to help the traditional bank business model of borrowing cheap and lending rich.
Finally, those curious if JPM was buying or selling Italian and Spanish bonds, we have news: in Q1 the firm reduced its net European exposure from $13.9 to $12.3, with Spain exposure down from $4.7 billion to $3.4 and Italy exposure down from $7.6 billion to $7.1. Luckily, with Italian banks loaded up with more BTPs than ever before and Japan now purchasing "safe" Italian paper outright, there is no concern of losing yet another margin buyer.
Summary Q1 results (from the supplement):
JPM Loan Loss Reserve releases:
JPM Q1 Trading results - down:
Net Interest Margin:
Full earnings presentation (pdf):