What To Expect From JPMorgan’s Q1 2018 Results

JPMorgan Chase (NYSE:JPM) kicks off the earnings season for U.S. banks on Friday, April 13. We expect JPMorgan to report earnings of about $2.31 a share on revenues of $27 billion for the quarter, based on our detailed interactive model for JPMorgan’s revenues and expenses for the quarter. This compares to consensus estimates of $2.28 for JPMorgan’s EPS and $27.6 billion for its revenues. The three key trends that contribute to our forecast results are continued improvement in its net interest margin (NIM) figure, a sharp increase in securities trading revenues and a notable decline in investment banking fees.

It should be noted that the first quarter of a year is seasonally a strong period for investment banking operations, but is a slow period for retail and commercial banking. As JPMorgan’s business model includes a diverse set of financial services, the bank’s results should provide insights into the overall trends that affected each of these services over the quarter.

We maintain a $115 price estimate for JPMorgan’s stock, which is slightly ahead of its current share price.

Key Expectation #1: Continued Improvement In Net Interest Margin

The Fed’s ongoing rate hike process has helped interest margins across the banking sector improve over recent years, and we expect this trend to continue for Q1 2018. This should have a positive impact on JPMorgan’s net interest income for the quarter, although overall gains to the top line will be mitigated partially by seasonally lower growth in interest-earnings assets for the first quarter.

Key Expectation #2: Increase In Securities Trading Revenues Due To Higher Volatility

Securities trading revenues for investment banks globally rose considerably over the first half of 2017 due to an upbeat economic outlook, before falling sharply over the second half. This was primarily because volatility in global capital markets fell to all-time lows – weighing on the demand for security trading services. However, the fear of a trade war (between the U.S. and China in particular) over recent months has led to a spike in volatility, especially in global equity markets. This is good news for JPMorgan’s securities trading unit, which is likely to report a 5-10% year-on-year increase in revenues due to increased volatility.

Key Expectation #3: Reduction in Investment Banking Fees From Lower Deal Volumes

As we pointed out in a series of recent articles, there was a notable reduction in activity levels across the global debt and equity capital markets over Q1 2018 compared to Q1 2017. This year-on-year decline in deal volumes is expected to have a sizable impact on JPMorgan’s debt origination as well as equity underwriting fees. Although JPMorgan should see an increase in its M&A advisory fees compared to the figure a year ago, total investment banking fees (which include advisory as well as underwriting fees) are expected to be about 15% lower compared to the figure a year ago, primarily because debt origination fees constitute around half of its total investment banking fees.

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