- EPS: $0.78 vs. $1.84 estimate, a decline of 69% from Q1 2019
- Bank set aside $6.8 billion in loan loss provisions due to weakened economy
- Trading revenue helped boost total markets revenue by 39% year/year
JPMorgan Chase & Co. (JPM) is the biggest U.S. bank with a market value of $299 billion, making it a bellwether of the financial services industry and the economy.
The bank reported a first quarter 2020 profit of $2.87 billion, or $0.78 a share, missing analysts’ estimates of $1.87 per share. Revenue fell 3% year over year to $29.07 billion.
The extreme decline in profits, however, came as JPMorgan added $6.8 billion to loan loss provisions to bolster the bank against pending defaults, according to its earnings release. As CEO Jamie Dimon put it, “In the first quarter, the underlying results of the company were extremely good, however given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8B, resulting in total credit costs of $8.3B for the quarter.”
Dimon had warned weeks ago that 2020 earnings would be dreadful. But, as the biggest bank in the U.S. with assets of around $2.2 trillion.
It also has $638 billions of dollars in credit extended across the economy:
- Credit for consumers: $63 billion
- Credit for small businesses: $8 billion
- Credit for corporations: $213 billion
- Credit for corporate clients and non-U.S. Govt entities: $334 billion
- Credit for U.S. Govt., nonprofits, states, cities, universities and hospitals: $20 billion
One bright spot for JPMorgan’s first quarter was trading revenue. The raging volatility in financial markets helped boost the bank’s total markets revenue 32% from last year, bringing in $7.2 billion for that segment.
Another piece of decent news was that the bank's net interest margin came in at 2.37%, higher than the 2.35% expected. However it still lowered its full-year outlook for net interest income -- revenue from customers’ loan payments minus what the bank pays depositors -- by $1.5 billion to $55.5 billion. The revenue source accounted for about half the company’s total last year, and in the past has helped counter more volatile results in the trading and investment-banking divisions.
(Below is Investopedia's original earnings preview, originally published 4/7/20)
What to Look for
Shares of JPMorgan Chase have fallen in the past 6 weeks due to the economic and market turmoil caused by the COVID-19 pandemic.
During the trailing 12-month period, JPMorgan Chase has underperformed the market overall, with a total return of -12.6% compared with -8.0% for the S&P 500 Index.
JPMorgan Chase has reported YOY gains in both EPS and revenue in recent first quarters. Overall, EPS growth has outpaced revenue gains during the height of the economic expansion. Earnings climbed by 22.2% YOY in Q1 2017 as revenue rose 7.3%. Profit growth accelerated sharply in Q1 2018, rising 43.6% YOY on an 11.9% revenue increase. In Q1 2019, earnings growth slowed to 11.8% YOY, but that still was more than double the pace of revenue growth. The coming quarterly report for Q1 2020 is expected to be a dramatic departure from that trend as earnings per share fall for the first time in more than 2 years. While the good news is that revenue still will grow, the estimated 0.5% increase is a fraction of recent quarters.
JPMorgan Chase's downshift also will be apparent when compared sequentially to the most recent Q4 2019, when the bank exceeded analyst estimates for both EPS and revenue. Compared to Q4, earnings per share in Q1 will fall as revenue rises.
|JPMorgan Chase Key Metrics|
|Estimate for Q1 2020||Q1 2019||Q1 2018|
|Earnings Per Share ($)||2.43||2.65||2.37|
|Net Interest Margin (%)||2.35||2.56||2.48|
For a bank like JPMorgan Chase, net interest margin is a key indicator of overall performance. As indicated, this key ratio shows whether a financial institution is able to lend money at higher rates than it pays for deposits and other sources of funds. The metric signals whether a bank can thrive over the long haul, and it helps prospective investors determine whether or not to buy shares in a given financial services firm. For banks like JPMorgan Chase, net interest margin is particularly important at periods like this year, when the COVID-19 pandemic has led to falling interest rates.
On a quarterly basis over the past two years, JPMorgan Chase has seen its net interest margin remain fairly steady between the range of 2.38% (Q4 2019) and 2.56% (Q1 2019). However, net interest margin has been steadily declining on a quarterly basis since Q1 2019, following a slow trend upward for this metric in FY 2017 and FY 2018.
JPMorgan Chase."JPMORGAN CHASE REPORTS FIRST-QUARTER 2020 NET INCOME OF $2.9 BILLION, OR $0.78 PER SHARE," Page 1. Accessed April 14, 2020.
JP Morgnan Chase. "EARNINGS RELEASE FINANCIAL SUPPLEMENT," Page 4. Accessed April 14, 2020.
JP Morgan Chase. "1Q20 Financial Results," Page 12. Accessed April 14, 2020.
JPMorgan Chase & Co. "JPMorgan Chase Announces Conference Calls to Review First-Quarter, Second-Quarter, Third-Quarter and Fourth-Quarter 2020 Earnings," Accessed April 6, 2020.