JP Morgan Chase Disappointed by Muted Numbers, Share Buyback Suspension and Bleak Guidance

Shares of JP Morgan Chase (JPM) were down 3.5% on the reporting day, July 14, after a muted quarterly report. JPM's Q2 earnings per share of $2.76 fell short of the consensus estimate of $2.91; versus $2.63 in the first quarter of 2022 and $3.78 in the last year quarter. The loan loss reserve was $1.10 billion, up from $1.46 billion in Q1, and a surplus of $2.29 billion in Q2 of 2021. Total non-interest expenses in Q2 were $18.7 billion, up from $19.2 billion in Q1 and $17.7 billion in Q2 of 2021.

Net income for April-June was $8.6 billion, or $2.76 per share, down 27% from a year earlier and 6% below consensus. Revenue of $30.72bn vs. market expectations of $31.82bn, down 2% YoY. Investment banking looked worse than other divisions: revenue fell by 32% to $788 million. Total assets under management (Asset & Wealth Management) decreased by 8% to $2.7 trillion. Retail banking showed growth: loan issuance rose by 2% YoY, delinquency on cards remained below 1.5%. Ordinary dividend of $3.0 billion or $1 per share retained.

Return on shareholders’ capital reached 17% versus 16% in the previous quarter and 23% in the previous year's quarter. The investment bank has temporarily suspended share buybacks as it raises capital to meet higher requirements set by the regulator as a result of a recent stress test. Nevertheless, for all of 2022, JPMorgan raises its net interest income forecast excluding corporate and investment banking markets to $58bn+ from its previous estimate of $53bn+. The company maintains its 2022 adjusted non-interest expense forecast at around $77 billion in April.

Bottom line: JPMorgan presented the worst report in 3 years. The bank expects a recession due to record inflation, as well as substantial aggravation of credit markets in the U.S. and events around Ukraine. The share buyback program has been temporarily suspended. Revenue and profit fell more than expected, both metrics were worse than the consensus. In fact, JPM has more downside potential than we anticipated, not least because, as it was mentioned, it has temporarily suspended its share buyback program in order to meet Tier 1 capital requirements.