J.P. Morgan stock chops around as Q2 earnings meet expectations; Investors await comments on share buybacks
AInvestFriday, Jul 12, 2024 8:21 am ET
3min read
JADE --

JPMorgan Chase’s Q2 2024 results showcased strong financial performance, with net income reaching $18.1 billion and EPS of $6.12, surpassing the $5.88 consensus estimate. The bank’s managed revenue was $51.0 billion, significantly higher than the $42.23 billion consensus, representing a 20% year-over-year increase.

JPM shares initially dipped in reaction as results fell short of heightened expectations. However, the stock is seeing a rebound ahead of its 8:30am ET conference call. Investors will be curious to hear comments around JPM's share buyback. Previously, Jamie Dimon has said the bank would prefer to use its cash for other operations, most notably building out its AI functionality. This begs the question, if JPM sees its stock as too expensive at 1.9x book, why should I buy it?

Jamie Dimon, Chairman and CEO of JPMorgan Chase, highlighted the firm's strong performance in Q2, generating $13.1 billion in net income and a 20% ROTCE after excluding special items. In the Corporate & Investment Bank (CIB), investment banking fees rose 50%, and markets revenue increased 10%. The Consumer & Community Banking (CCB) segment saw over 450,000 net new checking accounts and a 14% increase in client investment assets to $1.0 trillion. Additionally, card loans grew by 12%, driven by robust customer acquisition. Asset & Wealth Management (AWM) achieved a 13% rise in asset management fees and $79 billion in client asset net inflows. Dimon emphasized vigilance regarding potential economic tail risks, such as geopolitical complexities, inflationary pressures, and the effects of quantitative tightening. He also noted the firm's CET1 capital ratio of 15.3%, supporting a planned dividend increase. Dimon reiterated the firm's commitment to investing in long-term growth, maintaining a strong balance sheet, and driving economic growth by extending credit and raising capital for various stakeholders.

Net interest income (NII) came in at $22.9 billion, aligning closely with the $22.82 billion estimate and reflecting a 4% increase year-over-year. The net interest margin (NIM) remained a critical focus, with a modest decline to 2.75% from 2.77% in the prior quarter, reflecting the pressures from deposit margin compression and higher funding costs. These figures underscore the bank's ability to manage its interest rate environment effectively, despite the slight dip in NIM.

The return on equity (ROE) was 23%, significantly above the estimated 17.4%, and the return on tangible common equity (ROTCE) was 28%, outperforming the 22.4% expectation.

The provision for credit losses was $3.1 billion, exceeding the $2.83 billion estimate. This included net charge-offs of $2.2 billion, up $820 million year-over-year, primarily driven by Card Services. Additionally, there was a net reserve build of $821 million, with $609 million in Consumer, mainly in Card Services, and $189 million in Wholesale. In the prior-year quarter, the provision was $2.9 billion, with a net reserve build of $1.5 billion and net charge-offs of $1.4 billion, largely associated with First Republic.

In the Consumer & Community Banking (CCB) unit, net revenue was $17.7 billion, a 3% increase year-over-year, driven by higher noninterest revenue in Banking & Wealth Management and Card Services & Auto. However, net income declined by 21% to $4.2 billion, primarily due to increased expenses and credit costs. The unit saw a provision for credit losses of $2.6 billion, reflecting net charge-offs of $2.1 billion and a net reserve build of $579 million, driven by loan growth and updates to macroeconomic variables.

The Commercial & Investment Bank (CIB) unit reported net income of $5.9 billion, an 11% increase year-over-year, with net revenue of $17.9 billion, up 9%. Investment Banking revenue surged by 46% to $2.5 billion, driven by higher fees across all products. Markets & Securities Services revenue was $9.0 billion, up 8%, with Markets revenue increasing 10% to $7.8 billion. Noninterest expense for the CIB unit rose by 12% to $9.2 billion, due to higher compensation, legal expenses, and volume-related non-compensation expenses.

Asset & Wealth Management (AWM): The segment generated revenue of $5.3 billion, up 6% year-over-year, driven by higher management fees and strong net inflows. Net income was $1.3 billion, a 3% increase from the previous year. Assets under management (AUM) grew by 15% year-over-year, reaching $3.7 trillion, while client assets were up 18% to $5.4 trillion, demonstrating the segment's continued growth and client engagement.

Corporate: The Corporate segment reported revenue of $10.1 billion, a substantial increase from the prior year's $6.4 billion. This growth was driven by a net gain related to Visa shares and higher net interest income. However, expenses also rose due to a $1.0 billion donation of Visa shares to pre-fund contributions to the Firm’s Foundation. Net income for the segment was $6.8 billion, up significantly from the previous year's $4.1 billion.

For the full year 2024, JPMorgan Chase maintained its forecast of adjusted expenses around $92 billion and net interest income of approximately $91 billion. CEO Jamie Dimon highlighted the firm’s vigilance regarding potential economic tail risks, such as geopolitical complexities, inflationary pressures, and the effects of quantitative tightening. Dimon emphasized that while market valuations and credit spreads reflect a benign economic outlook, the firm remains cautious about the uncertain global economic environment.

Overall, JPMorgan Chase's Q2 2024 results demonstrate robust financial performance across its business units, with significant gains in revenue and net income. The bank’s outlook for 2024 remains optimistic, supported by strong financial metrics and a prudent approach to managing potential risks. The firm continues to invest heavily in its businesses for long-term growth and profitability while maintaining a strong balance sheet to navigate various economic scenarios.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.