JPMorgan Chase's Earnings Decline Due to Provision Burden... Increased Stock Price Concerns

[Asia Economy Reporter Minji Lee] JP Morgan Chase is showing a sluggish stock performance after recording first-quarter earnings below market expectations.

On the 17th, JP Morgan Chase was trading at $126.12 as of the 14th. The U.S. stock market was closed on the 15th due to Good Friday, and the stock price has fallen 4.22% over the past five trading days. The decline in investor sentiment is presumed to be due to first-quarter earnings slightly missing expectations.

The company reported total operating income of $30.7 billion for the first quarter, down 4.9% compared to the same period last year. Earnings per share (EPS) decreased to $2.63 due to provisions for loan losses, a 41.6% decline year-over-year, and 2.4% below market expectations. This was due to the decrease in operating income and the base effect of provisions. While the reversal of provisions set aside in 2020 led to an earnings surprise last year, this year the reversal effect disappeared, and concerns over loan losses increased due to the Russia crisis and rising interest rates, leading to a $1.5 billion provision.

Kim Eun-gap, a researcher at IBK Investment & Securities, said, "If these costs had not been incurred, the results would have slightly exceeded market consensus. Since the COVID-19 peak, the reversal of provisions has continuously supported earnings, but this phase is ending, and additional Russia-related provisions have been added."

By segment, the Corporate and Investment Bank division, which accounts for 42% of total revenue, recorded revenue of $13.5 billion, down 7.4% year-over-year, due to a 31% decrease in investment banking fees and poor performance in securities products. The Consumer & Community Banking division posted revenue of $12.2 billion, down 2.3% year-over-year despite increases in deposits and customer investments, affected by declines in mortgage and auto lease-related revenue. The trading division decreased by about 8%, reflecting reduced stock trading activity.

Net interest income was $14 billion, up 8.6% from the same period last year. The net interest margin was 1.66%, 0.6 percentage points below market expectations. Non-interest income was $16.8 billion, down 13.1% year-over-year, mainly due to decreases in investment banking fees, investment losses, and reduced mortgage lending. EPS was $2.63, lower than the market expectation of $2.70, and down 42% compared to the previous year. Baek Doo-san, a researcher at Korea Investment & Securities, explained, “JP Morgan Chase can be seen as a hybrid of a bank and a securities firm, but going forward, interest income from the banking side, including household and corporate finance, is expected to improve. Despite the ambiguous first-quarter results, it is reasonable to maintain a positive outlook.”

Meanwhile, the company executed $1.7 billion in share repurchases in the first quarter of this year and paid $3 billion in dividends. Yoo Jung-ho, a researcher at KB Securities, analyzed, “Share repurchases reduce the number of shares outstanding, improving EPS. Since resuming share buybacks from the first quarter of last year, the shareholder return yield over the past year has improved to 7.6%.”

This content was produced with the assistance of AI translation services.