JPMorgan Results Marred By Misses. Buybacks To Resume

JPMorgan ended 2022 “in a position of strength,” Jamie Dimon said Friday.

More importantly, the firm is set to resume buybacks this quarter.

That’s an attempt at dry humor. The bank temporarily halted buybacks last summer, citing higher capital requirements. Dimon was irritable about it. In brief commentary accompanying Q4 results, he said the bank exceeded its capital target one quarter early, clearing the way for the resumption of buybacks “as we deem appropriate.” He expressed the usual semi-polite, veiled frustration at regulatory ambiguity in the press release. If past is precedent, he’ll be less polite on the call.

Net interest income was $20.3 billion in Q4 up 48%. We’re witnessing “peak NII” currently, and the bank’s forecast for 2023 had the potential to underwhelm. The $73 billion the firm projected was short of estimates. The Street was looking for around $74.4 billion. Don’t be surprised if that weighs on the stock, although earnings-day price action in big bank shares is notoriously difficult to parse.

IB was a rather large miss. Revenue of $1.39 billion was well short of the $1.66 billion expected. This is a tough environment. Street-wide, IB revenue was expected to fall more than 50%. At JPMorgan, the YoY drop in fees was 58%.

Advisory and equity underwriting were only slightly below forecasts, but at just $479 million, debt underwriting looked especially weak relative to expectations.

Trading, and particularly FICC, was supposed to save the day for Wall Street. Analysts expected the five largest desks to report around $22 billion in revenue for Q4, up around 10%.

For JPMorgan, though, FICC was below estimates. $3.74 billion in revenue was up just 12% YoY and short of the $3.91 billion analysts wanted to see. Equities revenue was flat at $1.9 billion, basically in line.

All in all, markets revenue of $5.67 billion was a miss.

Expenses were in focus at JPMorgan as well. Last year, non-interest expense rose 7% to $71.3 billion. For 2022, that figure was $76.1 billion, a touch below estimates. The firm sees expenses rising another 6.5% this year on labor inflation, headcount increases and “investments,” among other things. Non-interest expense of $19 billion in Q4 was below estimates.

Loans of $1.14 trillion were essentially in line. The Q4 provision for credit losses was materially higher than expected at $2.29 billion. That latter figure reflected a net reserve build of $1.4 billion ($1 billion in consumer) and net charge-offs of $887 million. JPMorgan cited “a modest deterioration in the firm’s macroeconomic outlook,” which now reflects “a mild recession in the central case, as well as loan growth in card services, partially offset by a reduction in uncertainty as the effects of the pandemic gradually recede.”

Frankly, it was difficult to find any overtly good news in JPMorgan’s results outside of the buyback resumption. That’s not to say the quarter was bad, necessarily. The bank did beat on the top and bottom lines (adjusted revenue of $35.57 billion was ahead of the $34.15 billion the Street expected, as was EPS of $3.57). And, again, expenses looked to be below expectations. But the misses seemed to outnumber the beats.

Dimon added the usual cautious commentary about the economy. The US, he said, “currently remains strong with consumers still spending excess cash and businesses healthy [but] we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.”