JPM Beats Boosted By Lending Despite Trading Miss As FICC, Sales & Trading Revenues Tumble

Tyler Durden's picture

Launching Q2 earnings season, moments ago JPM reported Q2 an adjusted record Net Income of $7.03 billion and EPS of $1.82, which however included an 11 cent legal benefit, beating expectations $1.57 and 27 cents higher than a year ago, on "managed" revenue of $26.4BN, beating consensus expectations of $25.1BN.

JPM reported average core loans up 8% Y/Y with net interest income also 8% higher to $12.5bn, “primarily driven by the net impact of rising rates and loan growth" even as average NIM missed.

Commenting on the result, Jamie Dimon said: “We continued to post very solid results against a stable-to-improving global economic backdrop. The U.S. consumer remains healthy, evidenced in our strong underlying performance in Consumer & Community Banking. Loans and deposits continue to grow strongly, and card sales and merchant processing volumes were up double digits, reflecting our consistent investment in the business. In the Corporate & Investment Bank, we maintained our leadership in Banking, while Markets revenue was down amid lower volatility and client activity.

Dimon concluded:“We are also pleased to announce increases to our capital return plans while continuing to invest in our businesses for long-term profitability – reflecting the financial strength of our company and the significant capital and liquidity improvements we have made over the past several years.”

Some other headline data:

  • 2Q Basel III common equity Tier 1 ratio 12.5%, above the est. 12.42%, with a 12% return on capital
  • Q2 Adjusted expense of $14.4BN and adjusted overhead ratio of 56%
  • 2Q compensation expenses $7.71 billion, estimate $7.96 billion
  • $4.5BN returned to shareholders in 2Q17, including $2.7B of net repurchases
  • Common dividend of $0.50 per share
  • Average core loans up 8% YoY and 2% QoQ

JPM also reported that its provision for credit losses in Q2 was $1.22BN, below the $1.33BN expected as loan consumer reserves were $9.2BN in Q2, up $252MM to $9.2BN while wholesale reserves eclined by $241MM to $5.3BN.

More importantly, in light of the collapse in the yield curve, JPM announced that in Q2 its "net yield on interest-earning assets" or NIM declined from 2.33% in Q1 to 2.31% in Q2, below the 2.37% expected.

However, despite the record top and bottom line, JPM's sales and trading disappointed again, with JPM reporting total markets revenue of $4.8 billion, down 14% as both FICC and equity sales & trading revenue for Q2 quarter that missed estimates.

  • 2Q FICC sales & trading revenue $3.22 billion, down 19% Y/Y, missing the estimate of $3.25 billion due to "due to reduced flows driven by sustained low volatility and tighter credit spreads, against a strong prior year"
  • 2Q equities sales & trading revenue $1.59 billion, estimate $1.62 billion

On the other hand, 2Q investment banking revenue $1.70 billion, up 14% Y/Y and beating expectations of $1.65 billion. On the expense side, JPM reported Corporate and IBank overhead of $4.8B, down 5% YoY, driven by lower compensation expense.

JPM also reported average VaR of only $27, well below the $44 reported a year ago.

Overall, corporate and IBank revenue fell 3% Y/Y to $8.9 billion,
although due to lower overhead net income rose 9% to $2.7 billion.

As noted above, Jamie Dimon blamed "lower volatility, client activity" for the disappointing print.

Offsetting the poor trading data was solid report by the bank's lending arm. The details:

  • Record revenue of $2.1B, up 15% YoY and 3% QoQ
  • Record net income of $902mm, up 30% YoY and 13% QoQ
  • Net interest income of $1.5B, up 22% YoY and 6% QoQ
  • Average loan balances of $198B, up 12% YoY and 3% QoQ
  • C&I loans up 9% YoY and 4% QoQ
  • CRE loans up 15% YoY and 2% QoQ
  • Average client deposits of $173B, up 1% YoY and down 2% QoQ
  • Credit costs net benefit of $130mm
  • Net charge-off rate of 2 bps
  • Net reserve release driven by Energy

Sadly, for some unexplained reason, this time JPM did not provide a breakdown of the trend in its consumer credit chargeoffs, which as a reminder, was among the biggest flags reported last quarter.

Finally, JPM provided the following guidance:

  • Expect 2017 net interest income to be up $4B+ YoY, market dependent
  • Expect 2017 adjusted expense to be ~$58B
  • Expect 2017 net charge-offs to be $5B+/-1
  • Expect 2017 average core loan growth to be ~8%

As a result, after a modst kneejerk reaction higher, the stock is now down just under 1%.

Full Q2 earnings presentation below (link):

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Stan522's picture

We are on a roller coaster ride....... Get used to it..

yogibear's picture

Federal Reserve's top cabal bank. Feeding at the Fed's free money trough along with Goldman.

The transfer of saver's money to these large banks continues.

Remember, it's socialize losess (taxpayer) and privatize profits. 

TheSilentMajority's picture

Make no mistake. This was a huge miss based on the whisper number for revenues.

Their earnings "beat" was just some creative accounting.

Barney08's picture

In this market there are no huge misses. Everybody gets a pass. Esp jpmc and gs. It's all good in the hood

I am Jobe's picture

Lending- LOL. Lending to whom, Hookers, Housewives for  a BJ and Blow/Opioids 

buzzsaw99's picture

they can't lose.

buzzsaw99's picture

trading volume down, credit spreads down, no problem.  make it up on cre lending then pass the crap securities on to the pension funds.  do stock buyback, take bonus.  easy peasy.

GodHelpAmerica's picture

Dimon's just another fed mouthpiece.

LawsofPhysics's picture

Like other primary dealer banks, JPM is the Fed. They cannot lose.

 

"Full Faith and Credit"

Cordeezy's picture

It is weird CIti and JPM both had beats on EPS and Revenue but they still fell in premarket.  I wonder what the numbers are actually saying.

 

www.escapeamazon.com

buzzsaw99's picture

the numbers are saying that everyone except you had the numbers last week.

PontifexMaximus's picture

did really anyone expect anything else than good numbers?

Chippewa Partners's picture

Another great week for Club Fed..........what possibly can go wrong?     When Jamie speaks all hail.    How quickly they forget when they all were feeding at the trough of the American Taxpayer and Hank made 'em take it!