Should investors be concerned about JPMorgan Chase?
America’s largest bank, JP Morgan Chase (NYSE:JPM) reported its first quarter results on Friday, kicking off the earnings season with strong sales and profits.
But that wasn’t enough to boost the bank’s shares, with shares down about 5% on Friday. Investors were concerned by a decline in net interest income and CEO Jamie Dimon’s warning of potential economic headwinds.
Net interest income decreases from the 4th quarter
JPMorgan Chase’s revenue increased 9% year-over-year and 8% quarter-over-quarter to $42.5 billion, and net income increased 6% year-over-year to $13.4 billion, or $4.44 per share. That’s a 44% increase from the fourth quarter, when JPMorgan Chase received a special assessment from the Federal Deposit Insurance Corporation to bolster its deposit insurance fund following last year’s banking crisis.
The big concern appeared to be related to net interest income, which rose 11% year over year to $23.2 billion but declined 4% sequentially from the fourth quarter. Dimon said this was primarily due to deposit margin compression and declining deposit balances in the consumer banking sector. He expects net interest income and loan loss costs to continue to normalize in the future.
More specifically, JPMorgan expected net interest income (NII) to be around $90 billion for the full fiscal year, in line with past estimates, although the market appears to have expected it to be revised upward. Some analysts, including UBS’ Erika Najarian, had expected 2024 NII guidance to increase by $2 billion to $3 billion, according to CNBC. This may be due to the fact that large banks like JPMorgan Chase have the advantage of being able to limit their deposit costs in a still-high interest rate environment and still benefit from higher interest rates.
According to CNBC, Piper Sandler analyst Scott Siefers said JPMorgan Chase is “very conservative” in not raising its guidance and may actually raise it.
The bank’s consumer finance revenue rose 7% year-on-year to $17.6 billion, but non-interest expenses rose 15% to $9.3 billion and provisions for credit losses rose 36% to $1.9 billion, pushing the segment’s net profit by 8%. % decreased. 4.8 billion dollars.
But JPMorgan’s other businesses, particularly its investment banking division, saw revenue rise 27% this quarter compared to the same period last year, commercial banking revenue up 13% and net income up 39%. Wealth and wealth management revenue rose 7%, but higher costs led to a 6% drop in net income for the quarter.
uncertain power
Another concern that may have prompted Friday’s decline was Dimon’s comments about remaining uncertainty in the economy.
“Many economic indicators continue to be favorable. However, going forward, we remain alert to a number of significant uncertain factors,” Dimon said in the earnings report. “First, the global environment is unstable. Terrible wars and violence continue to cause suffering and geopolitical tensions are growing. Second, there appear to be a number of persistent inflationary pressures, which are likely to continue in the future. And finally, we have never really experienced the full effects of quantitative tightening on this scale. We don’t know how these factors will play out, but we need to prepare our company for a wide range of potential environments so we can be consistently present for our customers.”
Dimon expanded on these concerns in his annual letter to shareholders, detailed by ValueWalk’s David Moadel earlier this week.
Today’s selloff may have more to do with concerns about the overall economy, not just JPMorgan Chase, as all major indexes are down. But of all the banks, JPMorgan Chase is best equipped to handle economic challenges because of its strong balance sheet, efficiency, and diverse revenue streams. It’s also a promising sign that the company’s investment banking revenue has grown sharply.
I wouldn’t worry too much about JPMorgan Chase. If anything, a 5% decline creates a good buying opportunity for bank stocks.
