Key Takeaways

  • Analysts estimate EPS of $3.18 vs. $1.38 in Q2 FY 2020.
  • Bond trading revenue is expected to plunge YOY.
  • Equities trading revenue is expected to post a moderate decline YOY.
  • Companywide revenue is expected to decline amid low interest rates and lower market volatility.

JPMorgan Chase & Co.'s (JPM) earnings have bounced back in recent quarters after plunging in the first half of 2020 amid the COVID-19 pandemic. The bank is passing some of those profits directly to shareholders with plans to raise its third quarter dividend to $1.00 per share from $0.90 per share. Just days before JPMorgan announced the dividend increase, the Federal Reserve lifted limits on banks' dividend payments and share buybacks following annual bank stress tests.

Investors will watch whether JPMorgan can maintain its momentum when it reports earnings on July 13, 2021 for Q2 FY 2021. Analysts expect a mixed report card. Earnings per share (EPS) are expected to rise at a rapid pace, albeit significantly slower than in the first quarter of the year. But the troubling sign is that revenue is expected to decline at its fastest pace in at least 14 quarters.

In the quarterly results, investors also will focus on JPMorgan's trading revenue, both from its bond trading desk and its equities trading desk. The bank's trading revenue benefited from the heightened volatility in securities markets over much of the past year. But for Q2, analysts expect both JPMorgan's bond and equities trading revenue to decline from the year-ago quarter, with bond trading seeing the steepest drop.

JPMorgan's stock has dramatically outperformed the market over the past year. But the stock got off to a relatively slow start. During the summer of 2020 through November 2020, JPMorgan shares kept pace with the broader stock market. But following the U.S. presidential election in early November and subsequent positive data regarding COVID-19 vaccine trials, it began to outperform. Shares of JPMorgan have provided a total return of 75.5% over the past year, nearly double the S&P 500's 38.6% total return.

One Year Total Return for S&P 500 and JPMorgan
Source: TradingView.

JPMorgan Earnings History

JPMorgan's stock initially rose after posting earnings and revenue that beat analyst estimates in Q1 FY 2021. EPS soared 473.8%, boosted by a $5.2 billion release of credit reserves. The bank had previously set aside that money for loan losses, which failed to materialize. The quarter's EPS growth was also aided by the bank's abnormally depressed EPS in the year-ago quarter when the bank was building up its loan loss reserves during the pandemic. Revenue grew 14.1% in Q1 FY 2021, the second fastest pace in at least 13 quarters. Revenue received a boost from strong results from the bank's equities trading desk.

JPMorgan also surpassed analysts' EPS and revenue estimates in Q4 FY 2020, but those beats weren't enough to keep its stock from continuing to slide over the next week before eventually trending higher. EPS rose at its fastest pace since Q4 FY 2018, up 46.8%. Like Q1, earnings also benefited from a credit reserve release, this time to the tune of $2.9 billion. Revenue grew 3.7% compared to the year-ago quarter, driven partly by strong growth in equities trading revenue.

Analysts expect mixed results in Q2 FY 2021. EPS is expected to rise 130.0%, which would mark the second fastest pace in at least 14 quarters after Q1's astronomical growth. Revenue, however, is expected to fall 10.1%, the fastest decline in at least 14 quarters. For full-year FY 2021, analysts estimate EPS will rise 50.4%, which would be the fastest pace in at least five years. Annual revenue is forecast to fall 0.4%, which would be the first decline in the past five years.

JPMorgan Key Stats
  Estimate for Q2 2021 (FY) Q2 2020 (FY) Q2 2019 (FY)
Earnings Per Share ($) 3.18 1.38 2.82
Revenue ($B) 29.7  33.1 28.8
Bond Trading Revenue ($B) 4.2 7.3 3.7
Equities Trading Revenue ($B) 2.2 2.4 1.7

Source: Visible Alpha

The Key Metric

As mentioned above, investors also will be watching JPMorgan's bond and equities trading revenue. The bank refers to these revenue streams as fixed income markets revenue and equity markets revenue, respectively. With net interest income down due to extremely low interest rates, JPMorgan has had to depend more on its trading desks to pull in revenue. Those trading desks benefited from heightened volatility triggered by the pandemic. However, volatility has subsided this year, making it increasingly difficult for traders to rake in windfall profits from major price swings in securities markets.

JPMorgan's annual bond trading revenue rose 44.8% in FY 2020, marking the fastest pace in at least the past four years. That rise was primarily driven by strong growth in the first half of the year, as bond trading revenue rose 34.0% in Q1 FY 2020 and then 98.9% in Q2 FY 2021. That growth slowed to 29.2% and 14.6% in Q3 and Q4, respectively. After rising 15.4% in Q1 FY 2021, analysts expect the bank's bond trading revenue to drop 42.7% in Q2 FY 2021 compared to the year-ago quarter. That would mark the first decline since Q1 FY 2019. For full-year FY 2021, analysts forecast bond trading revenue will fall 17.0%, which would be the first decline since FY 2018.

JPMorgan's annual equities trading revenue also expanded at the fastest pace in at least the past four years in FY 2020, up 32.5% from the previous year. The second quarter saw the biggest surge, as revenue from equities trading rose 37.7%. That growth subsequently slowed to 31.8% and 31.9% in Q3 and Q4, respectively, but picked up again in the first quarter of FY 2021, rising 47.0%. However, analysts estimate that the bank's equities trading revenue will fall 6.6% in Q2 FY 2021 compared to the year-ago quarter, which would be the first decline since Q3 FY 2019. For full-year FY 2021, analysts forecast that equities trading revenue will rise 7.2%.