The most important bank within the U.S., JPMorgan Chase (NYSE:JPM), released its first-quarter earnings on Friday, kicking off earnings season with a revenue and profit beat.
Nonetheless, that was not enough to lift the bank’s stock, as its share price tumbled some 5% on Friday. Investors were concerned concerning the drop in net interest income and CEO Jamie Dimon’s warnings about potential economic headwinds.
Net interest income dropped from Q4
The numbers were pretty solid, as JPMorgan Chase’s revenue rose 9% yr over yr and eight% from the previous quarter to $42.5 billion, while its net income increased 6% yr over yr to $13.4 billion, or $4.44 per share. That’s also up 44% from the fourth quarter, when JPMorgan Chase got hit with a special assessment tied to shoring up the Federal Deposit Insurance Corp.’s Deposit Insurance Fund following last yr’s banking crisis.
The large concern gave the impression to be related to net interest income, which rose 11% yr over yr to $23.2 billion but fell 4% sequentially from the fourth quarter. Dimon said it was as a result of deposit-margin compression and lower deposit balances, mostly in the buyer banking segment. Looking ahead, he expects to see continued normalization for net interest income and credit costs.
More specifically, JPMorgan anticipates net interest income (NII) of around $90 billion for the complete fiscal yr, according to past estimates, however the market had apparently expected it to revised up. Some analysts, including Erika Najarian at UBS, expected NII guidance for 2024 to be bumped up by $2 billion to $3 billion, in keeping with CNBC. This may increasingly be as a result of the benefits a big bank like JPMorgan Chase has in a still-high interest-rate environment to limit deposit costs and still reap the advantages of high rates of interest.
Analyst Scott Siefers at Piper Sandler said JPMorgan Chase was being “ultra conservative” in not raising its guidance and should in truth raise it down the road, in keeping with CNBC.
The bank’s consumer banking revenue rose 7% yr over yr to $17.6 billion, but non-interest expenses grew 15% to $9.3 billion while provisions for credit losses jumped 36% to $1.9 billion, which caused net income within the segment to fall 8% to $4.8 billion.
Nonetheless, JPMorgan’s other businesses performed well, particularly investment banking, which saw its revenue climb 27% yr over yr within the quarter, while business banking revenue rose 13% and net income jumped 39%. Asset and wealth management revenue was up 7%, but net income fell 6% within the quarter as a result of high expenses.
Uncertain forces
One other nagging concern which will have prompted Friday’s drop was Dimon’s comments on the uncertainty that is still within the economy.
“Many economic indicators proceed to be favorable. Nonetheless, looking ahead, we remain alert to various significant uncertain forces,” Dimon stated within the earnings report. “First, the worldwide landscape is unsettling — terrible wars and violence proceed to cause suffering, and geopolitical tensions are growing. Second, there appears to be numerous persistent inflationary pressures, which can likely proceed. And at last, we now have never truly experienced the complete effect of quantitative tightening on this scale. We don’t know the way these aspects will play out, but we must prepare the firm for a big selection of potential environments to make sure that we are able to consistently be there for clients.”
Dimon expanded on these concerns in his annual letter to shareholders, which ValueWalk’s David Moadel detailed earlier this week.
The selloff today can have had more to do with concerns concerning the overall economy and never just JPMorgan Chase, as all of the foremost indexes were down. Nonetheless, of all of the banks, JPMorgan Chase is best-equipped to handle any economic hiccups as a result of its fortress balance sheet, efficiency and diverse revenue streams. It’s also a promising sign that the firm’s investment banking revenue was up sharply.
I might not be too concerned about JPMorgan Chase. If anything, the 5% drop creates buying opportunity for the bank’s stock.