JPMorgan Generated Record Equity Market Revenue As Volatility Soared

Unofficially launching the Q1 earnings season (technically PNC was first), moments ago JPMorgan reported Q1 earnings which beat on both the top and bottom line, with revenue of $28.5BN above the $27.68BN consensus est (and above the highest sellside estimate of $28.23BN), generating EPS of $2.37, also beating expectations of a $2.28 print.

That said, the EPS number included a modest after-tax charge of $0.11 ($505MM pretax), on "new recognition and measurement accounting guidance – mark-to-market gains on certain equity investments previously held at cost."

The key at the summary level, however, is that JPM's income tax expense decreased by approximately $240 million despite a $2.0 billion increase in pre-tax income, reflecting the lower income tax rate as a result of the enactment of the Tax Cuts & Jobs Act i.e. Trump tax reforms.

Broken down by business segment, JPM reported the following revenue:

  • Consumer & community banking rose 4% to $12.6 bln
  • Corporate & investment bank is rose 39% to $10.5 bln
  • Commercial banking down 8% to $2.2 bln
  • Asset & wealth management down 4% to $3.5 bln

The bank also reported a provision for credit losses of $1.165BN in Q1, well below the $1.46BN estimated, and 11% lower than the $1.308BN recorded in Q4 and $1.315BN one year ago.

At the same time, charge-offs climbed by $100 million to $1.3 billion in the quarter, mostly driven by an increase in souring credit card loans, which jumped 18% Y/Y from $993MM to $1.170BN. As a result, the charge-off rate in card rose to 3.32%. As Bloomberg notes, the bank had said the charge-off rate for the year in cards would be 2.95%, so analysts might have some questions about whether that target will need to come up based on these numbers.

As JPM confirmed, the consumer provision reflected higher net charge-offs in Card in the current quarter. The prior year included a write-down of the student loan portfolio which was sold in 2017. In  Wholesale, the provision for credit losses was a benefit, reflecting net reserve releases of $170 million in the current quarter, "driven by a reserve release in the Oil & Gas portfolio related to a single name."

Keep a close eye on what other banks reports as credit card chargeoffs as this is a leading indicator of consumer pain.

* * *

However with few concerns about the bank's balance sheet, attention was focused on its income statement, and specifically how the bank's high-margin FICC and sales and trading group performed in a time of rising volatility.

The answer: quite well - or as some put it, Q1 was a goldilocks environment for JPM's trading desk - as in the first quarter, FICC sales & trading generated revenue $4.553 billion, beating the estimate of $4.44 billion, although an unknown component of this was due to a one-time item.

But the big surprise was the surge in JPM's Equity Markets, which showed that for banks, rising volatility is indeed a gift as in Q1, equities sales & trading revenue rose to $2.02 billion, up $411 million Y/Y and smashing estimate of $1.76 billion, and a new all time high.

One negative: Q1 investment banking revenue $1.59 billion dropped $127MM Y/Y missing the estimate $1.76 billion, driven by lower debt and equity underwriting fees, which were partially offset by higher advisory fees.

In its breakdown of the numbers, JPM announced that markets revenue of $6.6B includes ~$500mm mark-to-market gains on certain equity investments previously held at cost and ~$150mm reduction of TEA driven by the enactment of the Tax Cuts and Jobs Act (“TCJA”). Excluding MTM gains and TEA impact, YoY Markets revenue was up 7%.  Separately, "fixed Income Markets revenue was flat, and Equ. ity Markets revenue was up 25% driven by strength across productsSecurities Services revenue of $1.1B, up 16% YoY."

And while "there was a lot of noise in the trading numbers" as Bloomberg notes, excluding it, trading revenue was up 7% driven by equity gains, which was better than expected.

FICC trading was flat excluding one time gains. But most analysts expected an increase.

A rise in net interest income was a good sign for the bank as across the industry, some expected pressure amid the flattening yield curve.

Return on tangible equity of 19% also topped the 18% medium-term target that JPMorgan set just weeks ago.
Jamie Dimon says JPM outperformed the industry on consumer deposit growth.

In the card business, there was an increase in souring credit card loans.

Some more good news: JPM is again paying out solid bonuses as IB expense of $5.7B, rose 9% YoY, "driven by higher compensation and volume-related transaction costs."

Commenting on the results, Dimon said that "In the Corporate & Investment Bank we maintained our #1 rank in Global IB fees, including #1 in M&A which grew share in every region. A strong Markets performance was driven by record Equities revenue."

* * *

For those wondering how JPM's Net interest margin did, it was up to 2.48% in Q1 from 2.42% in Q4. The average interest JPMorgan pays on its liabilities has risen by 30 basis points in a year while average interest it earns on its assets has risen by 41 basis points.

As Dimon noted in his comment on the segment, "Commercial Banking continued to see revenue growth driven by rates and good capital markets flows. Despite client sentiment remaining high, the environment is intensely competitive and lending was flat for the quarter. Our Asset & Wealth Management business delivered strong results, with long-term net inflows this quarter across all regions, even as volatility returned to the market."

* * *

With regard to new capital requirements, JPM said in its annual filing that it expects to have to clear a 10.5% Tier 1 capital ratio by next year, while in 1Q that ratio rose to 11.8%, showing that the bank has breathing room even if new proposed rules from the Fed boost that 10.5% minimum.

Finally, JPM provided the following outlook:

  • FY2018 net interest income $54b-$55b
  • FY2018 adj. expense about $63b, including $1.2b effect of revenue recognition accounting standard
  • FY2018 noninterest revenue growth about 7%, market dependent
  • FY2018 effective income tax rate: 20%

Full earnings presentation below (pdf link):

Comments

mark1955 brian91145 Fri, 04/13/2018 - 07:54 Permalink

Friday the 13th Alert!!! Possible False Flags staged by FBI between today and the 19th!

Apologizes for being off-topic!

 

I believe the FBI, might Try and Stage Mass Shooting/Bombing/Power line downing false flags because of the anniversary's of various incidents coming up between today and next Thursday ( April 19th )!

 

Possible targets: Monday ( the april 16th ) Boston Marathon, Sunday the 15th ( Tax day ), Thursday April 19th ( Waco Branch Davidian and Oklahoma, City bombing anniversary's ). Also, Yawkey Way outside of Fenway Park a possible target, as the FBI/DHS have staged Drills there in the recent past.

April 19th, is also "Patriots Day", the anniversary of the date in 1775, when the British marched to Lexington/Concord, to try and Confiscate the Firearms/Powder of the Colonist.

 

  Staging attacks today and on those above dates, would ( In theory at least ) allow the FBI to more easily tie their Staged attacks into being falsely blamed on Conservatives and the Right Wing, to Try and get more Gun control and further Try to Demonize the "Right" falsely, as the "Number One Domestic Terror Threat".

 

   Any alleged "Attacks" happen on those dates, please call them out for the Staged Farces that they are.

In reply to by brian91145

mark1955 brian91145 Fri, 04/13/2018 - 08:17 Permalink

Yep!

If Anything happens...Immediately Demand HD video proof. We don't ever see videos of any of these alleged events. 

 

  Past Friday False Flags: Aurora, Colorado theatre 2012! Sandy Hoax 2012!  Santa Monica,California 2013! TSA LAX check point FRIDAY THE 13TH 2013!  Arapahoe High school Colorado, Friday THE 13TH! 2014 UCSB, California! Ft. Lauderdale Airport shooting 2016!  All on Friday's!!!

 

 

 

God Bless!

In reply to by brian91145

SybilDefense brian91145 Fri, 04/13/2018 - 08:09 Permalink

I bet the consumers who they represent didn't have the same %25 increase in their equity value.  No worries, the corp bonuses will be paid out.

Its "make the market" not "mark to market". Of course you will make better investments when you are the source of the markets direction.  Even a blind begger with no legs on a skateboard can short the market if he gets to write the orange juice report.

In reply to by brian91145

Iconoclast421 Fri, 04/13/2018 - 08:30 Permalink

I could see somebody making money hand over fist yesterday. 10 minutes after every new high on the S&P500, there would be this huge dump. Then after a while it would claw its way to another new high and then 10 minutes later another giant dump.

Downtoolong Fri, 04/13/2018 - 09:19 Permalink

Wall Street loves the three “B’s”; Bubbles, Booms, and Busts.

These lead to more transactions, and that’s what most of their revenue is derived from.