JPMorgan Results Underwhelm Amid Epic Bank Rally

US banks came into earnings season on a sugar high, catalyzed by higher yields and expectations for Fed hikes.

The KBW Bank Index was up nearly 12% in 2022 coming into Friday (figure below). That included the best performance over the first five days of a calendar year on record as well as multiple all-time highs.

Analysts were intently focused on loan growth in Q4 results. In the pandemic era, trading and investment banking delivered windfalls for Wall Street. Now, the market wants evidence of an inflection in lending which, ostensibly anyway, would bode well for the domestic recovery.

Fed data showed loans by the 25 largest banks were almost 4% higher at the end of last quarter compared to December 2020. In theory, that should show up in Q4 results.

Earlier this week, during an interview with Fox, Jamie Dimon explained that “people had a lot of money,” so they didn’t need loans. It wasn’t immediately clear which “people” Dimon was referring to.

He went on to say that loan growth is “going to be better now,” a prospective improvement he attributed to economic growth.

That brings us to JPMorgan’s Q4 results. Adjusted revenue of $30.35 billion beat estimates. Consensus was looking for $30.01 billion. The range was $28.81 billion to $30.77 billion. EPS of $3.33 easily beat (the estimate was $2.99).

Dimon did indeed tout a “pick up” in lending. Firmwide, average loans were up 6% YoY and 2% QoQ. Ex-PPP, the numbers were 8% and 3%, respectively.

JPMorgan once again benefited from a reserve release (figure below). Net income of $10.4 billion would’ve been $9 billion excluding the release. EPS would’ve been $2.86. Charge-offs were $550 million versus an estimated $746 million.

“The economy continues to do quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks,” Dimon said Friday. “Credit continues to be healthy with exceptionally low net charge-offs, and we remain optimistic on US economic growth as business sentiment is upbeat and consumers are benefiting from job and wage growth.”

That wage growth, you’re reminded, isn’t keeping up with inflation. Real average hourly wages rose a meager 0.1% from November to December. The YoY figure was -2.4%.

Markets underwhelmed (figure below). FICC revenue of $3.33 billion represented a 16% YoY decline and was short of the $3.42 billion consensus. The bank cited “a challenging trading environment in Rates, as well as lower revenues in Credit and Currencies & Emerging Markets compared to a strong prior year.”

Equities was a slight miss. Lower revenue in derivatives was offset by a solid performance from Prime.

IB was strong again. Revenue of $3.21 billion topped estimates ($3.08 billion). Fees rose 37% YoY.

All in all, it’s probably fair to suggest the bank’s results were underwhelming, if not quite disappointing. I’m not sure loan growth was anyone’s definition of “robust,” especially if you look at the numbers by business. Markets was an across-the-board miss, albeit not of the egregious variety. And expenses were markedly higher, something investors aren’t likely to forgive.

Bank earnings sometimes suffer from a “sell the news” phenomenon anyway. Given the sizable YTD rally in bank shares, the bar was high for additional gains following earnings. I’m not sure JPMorgan cleared it.