JPMorgan misses top and bottom-line expectations, FY24 guidance better-than-feared
Chase & Co. (JPM) Q4 Earnings Report Highlights Robust Loan Growth and Resilience Amid Economic Uncertainties
JPMorgan Chase & Co. (JPM), one of the largest global financial institutions, reported its Q4 earnings, revealing a mixed, noisy quarter. Both EPS and revenue fell short of expectations. JPMorgan expressed cautious optimism about the economy, highlighting some challenges and risks to keep an eye on.
Earnings and Revenue:
During Q4, JPMorgan reported earnings of $3.04 per share, excluding non-recurring items, which fell short of the Street expectations by approximately $0.30. The bank achieved an 11.7% year-over-year increase in revenues, generating $38.57 billion. Although revenues slightly missed the consensus of $39.73 billion, JPMorgan demonstrated resilience amidst prevailing market conditions.
Loan Growth and Credit:
JPMorgan's loan portfolio experienced significant growth, with average loans increasing by 27% compared to the previous year. Excluding First Republic, loans were up 6%.
The provision for credit losses in Q4 amounted to $2.8 billion, primarily influenced by net charge-offs of $2.2 billion and a net reserve build of $598 million. These figures demonstrate the bank's efforts to prudently manage its credit risks. This included a net charge-off of $2.2 billion, primarily driven by Card Services and single-name exposures in Wholesale. The prior-year provision was $2.3 billion, reflecting a net reserve build of $1.4 billion and net charge-offs of $887 million.The Card Services division witnessed a net charge-off rate of 2.79%, reflecting the normalization of credit losses. This compared to 2.49% in Q3.
JPMorgan Chase's investment banking revenue (IB) was $1.6 billion, up 13% year-over-year, with fees up 13% driven by higher debt and equity underwriting fees. Equity markets revenue was $1.8 billion, down 8% year-over-year, due to lower revenue in Derivatives and Cash.
The Firm's return on equity was 12%, while the return on tangible common equity was 15%. The standardized CET1 ratio was 15%, and the managed overhead ratio was 61%.
Net Interest Income and Non-Interest Revenue:
Net interest income (NII), a key revenue driver for JPMorgan, stood at $24.2 billion, representing a 19% increase year-over-year. Excluding First Republic, NII rose by 12%. The growth was predominantly attributable to higher rates and increased revolving balances in Card Services. Non-interest revenue reached $15.8 billion, indicating a 3% increase. Notably, the asset management and investment banking sectors contributed to this growth.
Outlook and Guidance:
JPMorgan forecast NII, excluding markets, of approximately $88 billion in NII, excluding Markets, for 2024. This outlook considers the offsetting effects of loan growth and potentially lower interest rates. The bank estimates expenses to amount to approximately $90 billion in 2024. Regarding Card Services, JPMorgan anticipates a net charge-off (NCO) rate of less than 3.50% for the fiscal year. These projections reflect the bank's cautious approach and anchor its expectations in the face of economic uncertainties.
Economic Environment:
JPMorgan acknowledges the resilience of the U.S. economy as consumers continue to spend, supported by significant government stimulus and investments in green initiatives and supply chain restructuring. However, the bank recognizes potential risks, including the impact of quantitative tightening on liquidity and ongoing geopolitical tensions in Ukraine and the Middle East. These considerations compel JPMorgan to exercise caution in its strategies for navigating the market.
Price Action:
JPM fell to $163 before ripping back higher and rallying to fresh all-time highs. The initial sell-off was triggered by the top and bottom-line miss. However, the FY24 outlook was better-than-expected and has led investors to buy the dip. We will see if the stock can hold these gains. A slip back to the $168 area, where the stock traded ahead of earnings, would be a critical test for bulls to guard against an intraday reversal.
Conclusion:
JPMorgan Chase & Co. exhibited solid growth in its loan portfolio and strong net interest income, demonstrating its ability to adapt to challenging market conditions. Despite falling short of EPS expectations, the bank's overall performance underscores its resilience and adaptability. As JPMorgan provides cautious guidance for the future while considering economic uncertainties and potential risks, investors should closely monitor the bank's prudent risk management practices and its ability to leverage growth opportunities, thus making informed investment decisions. Please note that the information stated above is based on data and trends obtained from the provided information and may not reflect the entirety of the company's financial situation or investment potential. Investors are advised to conduct their own thorough analysis before making investment decisions.