The stock of JPMorgan Chase & Co. (NYSE: JPM) closed nearly flat at $101.68 yesterday, after the investment banking behemoth reported quarterly profits below the expectations of analysts for the first time in 15 quarters, with zig-zag markets affecting bond trading desks late last year.
JP Morgan posts unimpressive results
The bellwether for the US financial sector reported net revenue of $26.11 billion in 4Q18, up 7% from $ 24.46 billion in the year-ago period. Net income on a managed basis was $26.8 billion, an increase of 4% from the corresponding period last year. Analysts anticipated Q4 2018 revenue of $26.9 billion.
For the fourth quarter of fiscal 2018, net income increased 67% y-o-y to $7.07 billion which compares with $4.23 billion in the similar period last year. The earlier result included a $2.40 billion deduction from net income because of the enactment of TCJA (Tax Cuts & Jobs Act).
Net income applicable to common stockholders for 4Q18 was $6.64 billion or $1.98 per share, compared with $3.77 billion or $1.07 per share in the similar period last year.
Analysts surveyed by Thomson Reuters anticipated the company to report earnings of $2.21 per share for the fourth quarter.
Commenting on the earnings, CEO Jamie Dimon said: “Despite a challenging quarter, we grew markets revenue in the investment bank for the year with a record performance in equities and solid performance in fixed income.”
The largest deficit in net income seems to have come from the trading division of the bank, where fixed-income trading generated revenue of $1.86 billion, compared to analysts estimate of $2.2 billion. The performance of the bank was also affected by the bank’s asset management division, which faced the onslaught from plunging markets that resulted in a $150 million markdown on private equity holdings.
For the quarter ended December, the bank reported a provision for credit losses of $1.5 billion, up 18% from the year-earlier and $250 million more than analysts’ estimate of $1.30 billion. An increase in net reserve builds in Consumer and Wholesale portfolios during the fourth quarter led to a sharp rise in the provision for credit losses.
Net interest income grew 9% y-o-y to $14.5 billion, primarily driven by loan growth as well as the impact of higher rates, partially offset by a decline in the Market net interest income. Non-interest revenue decreased 1% to $12.3 billion.
The bank reported non-interest expense of $15.7 billion, up 6% from last year. Costs related to investments in the business, including marketing, technology, real estate, and front-office hires, as well as auto lease depreciation led to the increase in non-interest expense.
Consumer & Business Banking net revenue was $6.6 billion, reflecting an increase of 18% on a y-o-y basis. Banking revenue grew 6% to $3.3 billion. Likewise, Investment Banking revenue increased 3% to $1.7 billion.
The New York-based bank posted a net interest margin of 2.54%, matching analysts’ expectations and representing an improvement of 3 basis points from the earlier quarter.
Dimon also spoke about the US political scenario that is now threatening to slow down the country’s economic growth. He said: “We urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment. Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone.”
The stock has turned fundamentally weak after reporting lower-than-anticipated earnings.
Technically, the stock has broken below its 50-day moving average. Furthermore, the MACD indicator is making new lows with a negative reading. As a result, we expect the stock to remain bearish in the short-term.
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