The largest bank in the U.S., JPMorgan Chase (NYSE:JPM), released its first-quarter earnings on Friday, kicking off earnings season with a revenue and profit beat.
However, that was not enough to lift the bank’s stock, as its share price tumbled some 5% on Friday. Investors were concerned about the drop in net interest income and CEO Jamie Dimon’s warnings about potential economic headwinds.
Net interest income dropped from Q4
The numbers were pretty solid, as JPMorgan Chase’s revenue rose 9% year over year and 8% from the previous quarter to $42.5 billion, while its net income increased 6% year over year to $13.4 billion, or $4.44 per share. That’s also up 44% from the fourth quarter, when JPMorgan Chase got hit with a special assessment tied to shoring up the Federal Deposit Insurance Corp.’s Deposit Insurance Fund following last year’s banking crisis.
The big concern seemed to be related to net interest income, which rose 11% year over year to $23.2 billion but fell 4% sequentially from the fourth quarter. Dimon said it was due to deposit-margin compression and lower deposit balances, mostly in the consumer banking segment. Looking ahead, he expects to see continued normalization for net interest income and credit costs.
More specifically, JPMorgan anticipates net interest income (NII) of around $90 billion for the full fiscal year, in line with past estimates, but the market had apparently expected it to revised up. Some analysts, including Erika Najarian at UBS, expected NII guidance for 2024 to be bumped up by $2 billion to $3 billion, according to CNBC. This may be due to the advantages a large bank like JPMorgan Chase has in a still-high interest-rate environment to limit deposit costs and still reap the benefits of high interest rates.
Analyst Scott Siefers at Piper Sandler said JPMorgan Chase was being “ultra conservative” in not raising its guidance and may in fact raise it down the road, according to CNBC.
The bank’s consumer banking revenue rose 7% year over year to $17.6 billion, but non-interest expenses grew 15% to $9.3 billion while provisions for credit losses jumped 36% to $1.9 billion, which caused net income in the segment to fall 8% to $4.8 billion.
However, JPMorgan’s other businesses performed well, particularly investment banking, which saw its revenue climb 27% year over year in the quarter, while commercial banking revenue rose 13% and net income jumped 39%. Asset and wealth management revenue was up 7%, but net income fell 6% in the quarter due to high expenses.
Uncertain forces
Another nagging concern that may have prompted Friday’s drop was Dimon’s comments on the uncertainty that remains in the economy.
“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” Dimon stated in the earnings report. “First, the global landscape is unsettling — terrible wars and violence continue to cause suffering, and geopolitical tensions are growing. Second, there seems to be a large number of persistent inflationary pressures, which may likely continue. And finally, we have never truly experienced the full effect of quantitative tightening on this scale. We do not know how these factors will play out, but we must prepare the firm for a wide range of potential environments to ensure that we can consistently be there for clients.”
Dimon expanded on these concerns in his annual letter to shareholders, which ValueWalk’s David Moadel detailed earlier this week.
The selloff today may have had more to do with concerns about the overall economy and not just JPMorgan Chase, as all of the major indexes were down. However, of all the banks, JPMorgan Chase is best-equipped to handle any economic hiccups due to its fortress balance sheet, efficiency and diverse revenue streams. It’s also a promising sign that the firm’s investment banking revenue was up sharply.
I would not be too concerned about JPMorgan Chase. If anything, the 5% drop creates a good buying opportunity for the bank’s stock.
