Key Takeaways And Trends From JPMorgan’s Q4

by Trefis Team
JPMorgan Chase
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JPMorgan Chase (NYSE:JPM) reported better-than-expected results for the fourth quarter of 2017 late last week – giving investors a good idea of what to expect from other banks’ earnings figures over the coming weeks. While the top line remained under pressure due to subpar trading revenues, a surge in net interest income more than made up for this – allowing the largest U.S. bank to comfortably beat earnings expectations.

We have summarized JPMorgan’s Q4 earnings and also detailed the major takeaways from the announcement in our interactive dashboard for the company, the key parts of which are captured in the charts below. Additionally, we have increased our price estimate for JPMorgan’s stock upwards from $98 to $115 primarily to factor in the impact of a lower corporate tax rate on the bank’s profits going forward.

See our full analysis of JPMorgan

Higher Net Interest Margin (NIM) Figure Is The Single Biggest Profit Driver In The Short Term

The Fed’s rate hike process has helped the interest rate environment recover steadily from the record lows seen in 2014-2015. JPMorgan’s net interest margin has climbed from 2.22% in Q4 2016 to 2.38% in Q4 2017 – resulting in quarterly net interest income crossing $13 billion for the first time since 2010. Net interest income contributed more than 55% of JPMorgan’s total revenues in Q4 2017 – up from 50% in Q4 2016.

Low Volatility In Capital Markets Hurting Securities Trading Revenues

JPMorgan’s investment banking revenues were sequentially lower across nearly all of its operating units – which can primarily be attributed to seasonally lower activity levels. The sharp year-on-year reduction was mostly due to significantly lower FICC (fixed income, currency and commodities) trading revenues – the result of low volatility in global debt markets despite upbeat market conditions.

Effective Tax Rate Elevated Due To One-Time Charge, But Will Fall Going Forward

JPMorgan incurred a $2.4 billion accounting charge in Q4 2017 as it wrote off a sizable chunk of its deferred tax assets in response to the lower tax rate implemented under the Tax Cuts and Jobs Act. This pushed the bank’s effective tax rate for the quarter to almost 50%, from an average figure of around 25% over the previous four quarters. As the U.S. corporate tax rate applicable to JPMorgan is now 21%, the bank’s effective tax rate could fall below 20% going forward.

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