JPMorgan Earnings: What Happened

JPM bond trading revenue and equities trading revenue beat expectations.

Key Takeaways

  • EPS was $3.79 vs. the $2.59 analysts expected.
  • Revenue exceeded analyst expectations.
  • Bond trading revenue was higher than the level analysts estimated.
  • Equities trading revenue was higher than the level analysts estimated.

What Happened

JPMorgan reported its Q4 FY 2020 financial results, posting a strong rise in EPS that beat expectations by a wide margin. Revenue was also higher than expected and marked a return to growth after the previous quarter's slight decline. Both bond trading revenues and equities trading revenues surpassed analyst forecasts.

(Below is Investopedia's original earnings preview, published January 13, 2021.)

What to Look For

JPMorgan Chase & Co. (JPM), the largest bank in the U.S., is already looking ahead to a post-pandemic economy. The bank recently agreed to acquire a major travel and loyalty business, betting that people across the world will be eager to vacation and travel again. But the bank's move comes as signs are emerging that the pandemic and its effects are far from over: coronavirus cases are reaching records and U.S. job losses are rising.

Investors will be closely watching to see how JPMorgan has been weathering the economic fallout from the COVID-19 pandemic when it reports earnings on January 15, 2021 for Q4 FY 2020. Analysts are expecting earnings per share (EPS) to barely rise as revenue slips slightly compared to the year-ago quarter.

Investors also will be focused on the bank's trading revenue, both from its bond trading desk and its equities trading desk. Volatility remains elevated amid the ongoing pandemic, which creates opportunities for traders. Analysts forecast robust growth in JPMorgan's bond trading revenue as well as its equities trading revenue.

Shares of JPMorgan have lagged the broader market for much of the past year. The stock started 2020 in step with the market but fell behind as stocks rebounded in late March following the pandemic-induced crash that started in late February. Only since the start of November has JPMorgan begun to close the gap with the rest of the market. The bank's shares have provided a total return of 6.0% over the past 12 months, below the S&P 500's total return of 15.6%.

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

JPMorgan's stock has been relatively insensitive to its quarterly earnings results in recent quarters. The bank posted a 9.0% rise in EPS in Q3 FY 2020, marking the first growth since Q4 FY 2019. Revenue, however, fell 0.5%, the second decline in three quarters. The bank noted that its net interest income, the difference between the interest it receives on loans and that which it pays out on deposits, was down 9% largely due to lower interest rates across the economy.

Financial results in Q2 FY 2020 were also mixed. EPS sank 50.9% compared to the same three-month period a year ago, while revenue rose 14.7%. But it was a definite improvement from Q1 FY 2020 when EPS plunged 70.4% and revenue fell 3.2%, as the global economy felt the first shocks of the COVID-19 pandemic.

Analysts are forecasting both EPS and revenue growth to be essentially flat in Q4 FY 2020, with EPS expected to rise just 0.7% as revenue dips 0.3% compared to the year-ago quarter. For full-year 2020 results, analysts predict EPS to sink 28.3% as revenue grows 2.0%. It would be the first EPS decline and the slowest revenue growth in at least four years.

JPMorgan Key Metrics
  Estimate for Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Earnings Per Share ($) 2.59 2.57 1.98
Revenue ($B) 28.2 28.3 26.1
Bond Trading Revenue ($B) 3.9 3.4 1.9
Equities Trading Revenue ($B) 1.8 1.5 1.3

Source: Visible Alpha

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.

JPMorgan's bond trading revenue rose 29.2%, 98.9%, and 34.0%, in Q3, Q2, and Q1 of FY 2020, respectively. Aside from the last two quarters of 2019, those growth rates are significantly higher than in any other quarter since at least Q4 FY 2017.

The story is similar for the bank's equities trading revenue, which rose 31.8%, 37.7%, and 28.5%, in Q3, Q2, and Q1, respectively, in the latest fiscal year. Each of those growth rates is higher than in any quarter since at least Q4 2017. Analysts estimate that bond trading revenue will rise 12.5% and equities trading revenue will grow 22.0% in Q4 FY 2020. While those numbers mark a slowdown, they still are stronger than the growth expected for the bank's overall revenue.

Article Sources
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  1. Bloomberg. "JPMorgan Chase Acquiring a Leading Travel and Loyalty Business."

  2. The Wall Street Journal. "Covid-19 Surge Ends Seven Months of U.S. Jobs Growth."

  3. JPMorgan Chase & Co. "JPMorgan Chase to Host Fourth-Quarter and Full-Year 2020 Earnings Call."

  4. Visible Alpha. "Financial Data."


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