JPMorgan Chase & Co. (JPM), the largest US bank by assets, is the first of a large group of banks to reveal first-quarter results this week as earnings season kicks off.
The company has been a strong performer in the banking sector, which has meaningfully lagged out of the broader market this year amid concerns about US banks’ ties to Russia and fears of an economic slowdown. However, JPMorgan shares are down 15.8% since the beginning of the year.
JPMorgan released its quarterly results Wednesday. Those were the headline numbers against expectations, according to analysts polled by Bloomberg.
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Revenues (Adjusted): $31.59 billion vs. $31.44 billion expected, $30.35 billion in Q4
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Earnings per share (Adjusted): $2.63 per share versus $2.72 forecast, $3.33 per share in Q4
Wednesday’s report is expected to reflect a lackluster quarter in banking strength. JPMorgan’s revenue is expected to fall 5% from the same period last year, while analysts expect earnings per share (EPS) to come in 40% less than the first quarter of 2021.
Among the key metrics that investors will be watching closely is a company’s net interest margin, the difference between a bank’s earnings on lending activities and the interest it pays to depositors. This number will benefit from higher interest rates, but if the Fed raises rates too aggressively and pushes the economy into recession, JPMorgan’s lending activity could take a hit.
The bank’s net interest margin is expected to come in at 1.65%, down one basis point from last quarter, according to Bloomberg data. Net interest income is likely to decline 1% compared to the fourth quarter but rise 5% from the same period last year.
Last year, JPMorgan and peers got a bump in profits from issuing credit-loss provisions in the COVID era, the reserves of financial institutions that built up at the start of the pandemic to absorb the potential shock of borrowers’ default. However, the fiscal increase from reserves that dampened earnings is expected to taper off in 2021. Bloomberg analysts expect only $900 million from reserves, compared to $1.8 billion in the fourth quarter.
Trading revenue is expected to decline 21% compared to the first quarter of last year, while investment banking fees are also expected to see a 24% decrease after activity was halted during the quarter due to geopolitical tensions between Russia and Ukraine and rising interest rates that affected the markets.
JPMorgan chief financial officer Jeremy Barnum last quarter warned in a call with reporters of “headwinds” of rising operating expenses after the bank attributed an 11% jump in operating expenses to $17.9 billion to increased compensation. The figure is expected to rise to $19.5 billion in the first quarter report.
“It’s true that the labor markets are tight, there is a small amount of labor inflation, and it’s important for us to attract and retain the best talent and pay competitively on performance,” Barnum said on the bank’s fourth-quarter earnings call.
After first-quarter results, JPMorgan CEO Jamie Dimon is expected to share his views on geopolitical risks and the Fed’s monetary tightening plans. bank head He cautioned in his closely read annual letter to shareholders Earlier this month, the ongoing Russian invasion of Ukraine was expected to significantly slow the US and global economy.
Damon is also likely to face questions about his remarks regarding JPMorgan’s $1 billion loss over time due to the war. He did not say the exact timeframe or how the estimate was calculated, but a JPMorgan spokesperson told Yahoo Finance after Dimon’s letter was released that the loss could be related to potentially troubled assets affected by the war.
Although the bank said it was not concerned about its direct exposure to Russia, the institution was concerned about the “secondary and implicit effects” of the crisis and the sanctions it is imposing on many companies and countries.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed
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