JPMorgan Chase (NYSE:JPM) announced its performance figures for Q1 2012 last Friday, and the better-than-expected numbers point toward an overall improvement in the banking environment after two difficult quarters. The banking group, which boasts of being the country’s largest in terms of assets, earned $5.4 billion for the quarter.  Notably, there were several one-time gains and losses that contributed to this figure.
We updated our price estimate for JPMorgan’s stock from $39 to $48 and attribute the near 25% upward revision to the following changes:
- A significant factor behind the increase in the estimate is our revision of JPMorgan’s dividend payout ratio, which now considers the effect of the 20% hike in dividends as well as the plan to buyback shares worth $15 billion over two years.
- We have also raised our estimates for JPMorgan’s sales & trading yield for the year considering the significant improvement in trading revenues seen during the quarter – a trend we believe will continue through the year.
Investment Bank Finally Reverses Fortune…
JPMorgan’s investment banking division saw revenues under pressure over the second half of 2011 on weak global economic conditions. But the bad fortune seems to be a thing of the past – at least for now – with investment banking operations roping in $7.3 billion this quarter. While this is almost 70% more than last quarter, it is still a billion shy of the figure a year ago.
The improved volatility in global markets clearly helped trading operations, which contributed a healthy $6 billion to the top-line this quarter.
… Even as Traditional Banking Strengthens
JPMorgan’s Retail Financial Services unit which represents its traditional banking business, grew revenues by 20% over last quarter and 40% over the first quarter of 2011. The division gained significantly from the improvement in provision figures for the quarter, which was nearly a negative million compared to the $779 million in Q4 2011 and nearly $1.2 billion in Q1 2011. This went a long way in helping the division’s margins.Notes: