Going into today, everyone’s attention was focused on the JPM earnings report, the first big bank to report, on concerns about the profitability of the banking sector. And sure enough, as the chart below shows, going into JPM’s earnings announcement, EPS expectations had been drastically cut to account for what was clearly set to be a painful quarter for banks.
Which is probably why there was a sigh of relief, when moments ago JPM reported that it had beat expectations of a $1.25 print, when it announced $1.41 in adjusted EPS, with total revenue sliding by $700 MM to $24.1 billion but also beating lowered expectations of $23.8 billion. The largest U.S. bank by assets reported a profit of $5.52 billion, or $1.35 a share before 6 cents in adjustments, a drop of 6.7% compared to the profit of $5.91 billion, or $1.45 a share, in the same period of 2015.
Where the market was particularly pleasantly surprised, was that despite the drop in markets trading revenue of -13% to $5.718BN and the slide in investment banking revenue -19% to $2.417B. And while FICC trading revenue slid by $557 million, or 13% YoY, to $3.6 billion, this was well above the estimate $3.23BN print. On the other hand, investment banking revenue of $1.2 billion missed estimates of a $1.36 billion print.
This was JPM’s commentary on the results:
Banking revenue
- IB revenue of $1.2B, down 24% YoY driven by lower debt and equity underwriting fees, partially offset by higher advisory fees
- Lending revenue of $302mm, down 31% YoY, reflecting mark-to-market losses on hedges of accrual loans and lower gains on securities received from restructurings
Markets & Investor Services revenue
- Markets revenue of $5.2B, down 11% YoY
- Fixed Income Markets down 13% YoY, reflecting an increase in the Rates business which was more than offset by lower performance across other asset classes
- Equity Markets down 5% YoY
- Securities Services revenue of $881mm, down 6% YoY
- Credit Adjustments & Other, a loss of $336mm, on wider credit spreads
Expense of $4.8B, down 15% YoY, primarily driven by lower compensation and lower legal expense
But even as trading revenues were modestly better than expected, the one item everyone was looking for was to see how much additional reserves JPM would build in light of the deterioration in the energy sector. Here, JPM reported that it had built Oil and Gas reserves by $529 million, a key component of the the $773 million in wholesale credit costs.
JPM also reported that within its investment bank, it took out Credit costs of $459mm, primarily reflecting higher reserves driven by Oil & Gas and Metals & Mining, while credit costs in its commercial bank rose by $304 million also driven by O&G reserves.
Finally, at the firm wide level, $JPM reported 14.0B of loan loss reserves at March 31, 2016, down $0.1B from $14.1B in the prior year, reflecting improved credit quality in Consumer offset by increases in Wholesale, reflecting the impact of downgrades in the Oil & Gas and Metals & Mining portfolios.
However, perhaps reminding that not all is well, JPM’s consolidated loan loss reserve was a material $439 million greater than the preceding quarter and the biggest reserve build in six years, since Q1 of 2010.
Finally, here is JPM’s outlook:
- Expect 2016 net interest income to be up ~$2B+ YoY
- Expect 2016 noninterest revenue to be ~$50B, market dependent
- Expect 2016 adjusted expense to be $56B+/-
- Expect 2016 net charge-offs to be ?$4.75B, with the YoY increase driven by both loan growth and Oil & Gas
- Expect Securities Services revenue to be ~$875mm per quarter for the remainder of 2016, market dependent
Full JPM presentation below
via Zero Hedge http://ift.tt/1VlCN9C Tyler Durden