What Investors Didn’t Like in JP Morgan’s Earnings Report Precisely?

January 17, 2022

views 2728
What Investors Didn’t Like in JP Morgan’s Earnings Report Precisely?

According to Bloomberg, JPMorgan (JPM) dropped the most since 2020 on plan for a big spending hike. No matter what was the true reason for that counterintuitive move, that signifies a rather troublesome quarter for the U.S. stocks despite positive earnings expectations.

The bank published its quarterly earnings on Friday with overall Q4 numbers beating consensus, helped by a release of a $1.8 billion net reserves, elevated capital markets activity, and a pick-up in lending. Unfortunately, Q4 EPS of $3.33 fell from $3.74 in Q3 2021 and $3.79 in the year-ago quarter. Provision for credit losses was a benefit of $1.29 billion, down from a benefit of $1.53 billion in Q3. Return on tangible common equity was 19% vs. 22% in Q3.

Bloomberg stated that JPM’s expenses in Q4 2021 rose 11% on an annual basis, and the bank said they expect them to rise to about $77 billion this year excluding legal costs, which would be an 8.6% additional increase. Fixed-income trading revenue slid 16%, worse than the 13.5% decline analysts had been expecting. Total trading revenue fell 11% against the 9% estimate. While the fixed-income business shrank the most, equities revenue also declined, falling 2% to $1.95 billion. Underwhelming results of its trading division and muted loan growth added to pressure on the company’s stock.

On the other hand, the company’s M&A division drastically outplayed all other ones. M&A fees rose 86% in Q4 2021, to $1.56 billion, higher than consensus estimate, helping push the firm’s net income to $10.4 billion, compared with expectations for $9 billion. JPMorgan ranked second in overall M&A market share during 2020's $5 trillion transactional spree.

In terms of the bank’s overall sustainability, JPMorgan's stress tests point to its equity Tier 1 RWA yearend projection at 11.2%, which is greater than the required 4.5%. The bank's general Tier 1 equity ratio projection of 12.9% also exceeds the required benchmark of 6%.

Shares of JPM were down 6.15% to $157.89 at Friday’s U.S. market close in New York, paring the gain in the past 12 months to 11%. That compared with a 32% advance for the broad-market KBW Bank Index in the same period.