JP Morgan Chase & Co (NYSE:JPM) stock rose 4% on Wednesday after it released better-than-expected earnings for its first quarter of fiscal year 2016. JP Morgan is often the first bank to release earnings, so many analysts use JP Morgan’s financial figures to set expectations for other major U.S. banks.
Net revenue posted for the quarter is $24.08 billion, up from $23.75 billion in the previous quarter. The net income is also higher at $5.52 billion, compared with $5.43 billion before. Overall earnings rose to $1.35 per share, compared with $1.32 per share in the last quarter. However compared to the previous year, the EPS this time has actually slipped by 7%. But despite a decrease in year-over-year earnings, the bank was still able to beat its earnings and revenue estimates, which was ultimately what Wall St. was looking for.
One factor that negatively affected the quarterly earnings is the exposure to the struggling energy sector. Oil and gas companies have found it difficult to pay back the loans they own the banks due to lower revenue from falling oil prices. Provision to total credit loss at JP Morgan practically doubled to $1.8 billion for the quarter, as oppose to $959 million from a year ago. However since last month it would appear that the price of crude has somewhat stabilized at around $40 per barrel so this should help both the energy sector as well as banks going forward.
Jamie Dimon, Chairman and CEO, commented on the financial results in the earnings press release: “We delivered solid results this quarter with strong underlying drivers. The consumer businesses continue to grow loans and deposits impressively, attracting deposits faster than the industry. The U.S. consumer remains healthy and consumer credit trends are favorable.”
“While challenging markets impacted the industry, we maintained our leadership positions and market share in the Corporate & Investment Bank and Asset Management, reflecting the strength of our platform. Even in a challenging environment, clients continue to turn to us in the global markets and we saw positive net long-term asset flows in Asset Management. We are one of the most trusted financial institutions in the world, delivering consistently for our clients, communities and shareholders. We plan to increase capital return in the first half of 2016 as the board approved an incremental $1.9 billion in share buybacks. As we build for the future, we are continuously innovating and investing to succeed. We are strengthening the Firm to withstand any environment and to maintain scale and profitability through the cycle.”~Jamie Dimon, Chairman and CEO of JP Morgan Chase & Co
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Although the CEO of the company appear to be optimistic about the future, many people are not convinced that the economy is as favorable as Jamie Dimon believes. Earlier this week, JP Morgan announced job cuts of 5% in its Asia wealth management sector. From a macro perspective there have been reports suggesting that consumers are reining in spending as the U.S. economy slows. The U.S. Commerce Department says consumer spending edged up only 0.1% in February. The agency also revised the spending figure for January down to less than 0.1%. Peter Boockvar, chief market analyst with research firm The Lindsey Group recently said that “spending was disappointing when we include the downward revision to January.” Even the International Monetary Fund has downgraded the U.S. growth rate by 0.2%, from 2.6% to 2.4% for 2016.
There are certainly a lot of headwinds for the banking sector and even for the economy as a whole. But despite weaker capital markets and non-performing investment banking, the latest earnings reported by JPM were enough to at least gain investors confidence and help raise the stock price up. As a long term investment JPM has not been a bad option. Over the past five and ten year periods the stock has returned about 32% and 46% respectively, not factoring in the 2.85% annual dividend. JP Morgan starts off the bank earnings season and sets a respectable benchmark for other financial institutions to follow.
This author is long 75 shares JPM as of writing this article.