JPMorgan kicked off big bank earnings Wednesday, reporting Q1 adjusted revenue of $33.12 billion, up 14% YoY and ahead of the $30.42 billion the market expected.
The range was $29.14 billion to $32.79 billion, so Dimon looks to have beat the most optimistic estimate on the top-line. EPS was $4.50, easily more than the $3.01 consensus expected.
Firmwide, the credit reserve release was $5.2 billion, which added $1.28 to the bottom-line.
Net income of $14.3 billion reflected “strong underlying performance across our businesses, partially driven by a rapidly improving economy,” Dimon said, calling credit reserves of $26 billion “appropriate and prudent, all things considered.” (There’s a lot to “consider,” that’s for sure.)
Moving quickly to consider “all things” (or at least some things) from the bank’s results, FICC revenue of $5.8 billion was up 15% and looked like a beat. The market was looking for $5.02 billion there. The bank cited strength in securitized products and credit, largely offset by lower revenue in rates and currencies and EM. Equities revenue of $3.3 billion rose 47%, and appeared to be a solid beat. Consensus was $2.32 billion. Performance was “strong across products.” When you toss in $1.1 billion from securities services, markets revenue rose 37% to $10.1 billion.
Investment banking revenue of $2.85 billion was a beat. Consensus was $2.46 billion. IB fees jumped 57%, thanks in part to a base effect, specifically “the absence of markdowns on held-for-sale positions in the bridge book recorded in the prior year.”
Notably, Dimon said that “consumer spending in our businesses has returned to pre-pandemic levels” in Consumer & Community Banking, up 14% compared to Q1 of 2019. He also cited “very strong” home lending originations (up 40%), a pace he suggested would likely moderate due to “the recent rise in interest rates.”
Dimon described loan demand as “challenged.” Outstanding card balances are still subdued “despite spend recovering to pre-COVID levels,” he said, adding that “deposits were up 32%.”
Net interest income of $13 billion was a miss. The market wanted $13.31 billion. Further, the full-year forecast for $55 billion was a touch below market expectations, which may have dented sentiment.
But markets appeared to focus primarily on Dimon’s use of the adjective “challenged” to describe loan demand. Additionally, the credit reserve releases obviously aren’t a sustainable profit-driver.
“With all of the stimulus spending, potential infrastructure spending, continued Quantitative Easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust, multi-year growth,” Dimon remarked, reiterating some of the points from last week’s 68-page shareholder letter. “This growth can benefit all Americans, particularly those who suffered the most during this pandemic.”
Those folks could use some “benefits,” that’s for sure. JPMorgan has seen its share.
Read more: Jamie Dimon Delivers 67-Page Prescriptive Manifesto For America
The percentage of lending made to individuals, small and mid-sized businesses by commercial banks has been dropping relentlessly. I recall that the non-bank share of such lending had risen to the mid-thirties.
Now even grandpa has become comfortable with online banking, which is allowing banks to further pare branches That helps their bottom lines in the short-term. But it also erodes loyalty to the banks which came from actually knowing the personnel in the shrinking number of “shops”, as they like to call their branches. Once grandpa is online, he can easily shop around and compare deposit and loan rates.
This erosion of the addressable market will continue, leaving the banks to fight over large loans and funding non-financial lenders, hedge funds and M&A activities.
Until Dimon’s mention, this dynamic has been totally overlooked by Wall Street analysts who continue to chant, “higher interest rates mean higher profits.” We’ll see said the blind man to the deaf man.