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JPMorgan Generated Record Equity Market Revenue As Volatility Soared

By Kurt Osterberg · On April 13, 2018

Unofficially launching the Q1 earnings season (technically PNC was first), moments ago JPMorgan reported Q1 earnings which beat on both the top and bottom line, with revenue of $28.5BN above the $27.68BN consensus est (and above the highest sellside estimate of $28.23BN), generating EPS of $2.37, also beating expectations of a $2.28 print.

That said, the EPS number included a modest after-tax charge of $0.11 ($505MM pretax), on “new recognition and measurement accounting guidance – mark-to-market gains on certain equity investments previously held at cost.”

The key at the summary level, however, is that JPM’s income tax expense decreased by approximately $240 million despite a $2.0 billion increase in pre-tax income, reflecting the lower income tax rate as a result of the enactment of the Tax Cuts & Jobs Act i.e. Trump tax reforms.

Broken down by business segment, JPM reported the following revenue:

  • Consumer & community banking rose 4% to $12.6 bln
  • Corporate & investment bank is rose 39% to $10.5 bln
  • Commercial banking down 8% to $2.2 bln
  • Asset & wealth management down 4% to $3.5 bln
  • The bank also reported a provision for credit losses of $1.165BN in Q1, well below the $1.46BN estimated, and 11% lower than the $1.308BN recorded in Q4 and $1.315BN one year ago.

     

    At the same time, charge-offs climbed by $100 million to $1.3 billion in the quarter, mostly driven by an increase in souring credit card loans, which jumped 18% Y/Y from $993MM to $1.170BN. As a result, the charge-off rate in card rose to 3.32%. As Bloomberg notes, the bank had said the charge-off rate for the year in cards would be 2.95%, so analysts might have some questions about whether that target will need to come up based on these numbers.

     

    As JPM confirmed, the consumer provision reflected higher net charge-offs in Card in the current quarter. The prior year included a write-down of the student loan portfolio which was sold in 2017. In  Wholesale, the provision for credit losses was a benefit, reflecting net reserve releases of $170 million in the current quarter, “driven by a reserve release in the Oil & Gas portfolio related to a single name.”

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