Key Takeaways

  • Bond trading revenue missed analyst expectations, but equities trading revenue came in above estimates.
  • JPMorgan has had to rely more on revenue from its bond and equities trading desks in the low interest rate environment. Those trading desks benefitted from volatility triggered by the COVID-19 pandemic, but that volatility has subsided recently.
  • Earnings benefitted from another release of loan loss reserves.
JPMorgan Earnings Results
Metric Beat/Miss/Match Reported Value Analysts' Prediction
EPS Beat $3.78 $3.18
Revenue Beat $30.5B $29.7B
Bond Trading Revenue Miss $4.1B $4.2B
Equities Trading Revenue Beat $2.7B $2.2B

Source: Predictions based on analysts' consensus from Visible Alpha

JPMorgan (JPM) Financial Results: Analysis

JPMorgan Chase & Co. (JPM) reported earnings for Q2 FY 2021 that beat analyst estimates by a significant margin. Earnings per share (EPS) surpassed analyst expectations, rising 174% year over year (YOY). The bank's quarterly revenue also came in above forecasts but was down 8% compared to the year-ago quarter. JPMorgan's bond trading revenue just missed expectations, while its equities trading revenue easily beat estimates. The bank's shares fell more than 1% in pre-market trading. Over the past year, JPMorgan's shares have provided a total return of 66.4%, well above the S&P 500's total return of 39.0%.

JPM Trading Revenue

JPMorgan's total trading revenue for the second quarter was $6.8 billion, down 30% from the year-ago quarter. Bond trading revenue sank as much as 44% YOY, marking the first decline since the first quarter of FY 2019. The bank's equities trading revenue was up 13% YOY, significantly better than the decline analysts were expecting but still a marked deceleration from the past five quarters.

In the current, ultra-low interest rate environment, JPMorgan has had to rely more on revenue from its trading desks. The bank's net interest income was down 8% YOY. But while those trading desks benefitted from heightened volatility triggered by the COVID-19 pandemic over the past year, that volatility has subsided in 2021, making it more difficult for traders to rake in windfall profits from big price swings in securities markets.

JPM Earnings Boosted by Reserve Release

JPMorgan indicated that its earnings received another boost from further net reserve releases of $3.0 billion, resulting in a $2.3 billion net benefit after net charge-offs. The bank built up its reserves against bad debts last year in anticipation of increasing loan defaults amid the pandemic, which suppressed earnings in the early half of FY 2020. But with many businesses and households receiving financial support from the government, the expected wave of defaults never materialized.

"Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve," said CEO Jamie Dimon. "In particular, net charge-offs, down 53%, were better than expected, reflecting the increasingly healthy condition of our customers and clients."

JPMorgan's earnings have benefitted from reserve releases in recent quarters. The bank highlighted its previously announced decision to increase dividend payments to shareholders and said that it plans to continue the share repurchases under its existing authorization. In late June, the Federal Reserve lifted limits on banks' dividend payments and share buybacks following annual bank stress tests.

JPMorgan did not provide any forward guidance in its earnings press release. The bank's next earnings report (for Q3 FY 2021) is estimated to be released on Oct. 13, 2021.