JPMorgan’s Consumer Banking Strength To Drive Strong Q2 Results Despite Investment Banking Headwinds

by Trefis Team
JPMorgan Chase
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JPMorgan (NYSE: JPM) will announce its Q2 2019 results on Tuesday, 16th July. Consensus figures indicate a 4% increase in revenues for the largest U.S. bank, even as the EPS figure is expected to swell 9% year-on-year to reach $2.51. Per Trefis, JPMorgan’s stock has a fair value of $120, which is 5% higher than the current market price. We have analyzed JPMorgan’s revenues & expenses over recent quarters in an interactive dashboard along with our expectations for full-year 2019. You can modify Trefis forecasts to see the impact of changes on JPMorgan’s valuation. Additionally, you can see more Trefis data for financial services companies here.

A Quick Look At JPMorgan’s Revenue Sources

JPMorgan reported $109 billion in Total Revenues in FY 2018. This included 5 revenue streams:

  • Consumer & Community Banking: $52.1 billion in FY 2018 (48% of Total Revenues) – The Retail Banking division of JPMorgan serves small businesses and consumers by providing traditional banking services to them through their various branch locations, ATM’s, online banking etc.
  • Corporate & Investment Banking: $36.4 billion in FY 2018 (33% of Total Revenues) – This segment includes Investment Banking (financial advisory and underwriting), Sales & Trading, and Treasury & Security Services (cash management, custody, trade, wholesale cards and liquidity products).
  • Commercial Banking: $9 billion in FY 2018 (8% of Total Revenues) – It provides corporate lending, treasury related, Investment Banking and asset management services.
  • Asset & Wealth Management: $14.1 billion in FY 2018 (13% of Total Revenues) – It includes global investment management, banking, brokerage and retirement services to corporations and high net-worth individuals.
  • Corporate: -$2.6 billion in FY 2018 (-2% of Total Revenues) – It comprises private equity, treasury, corporate staff units and expenses that are centrally managed.

How Have JPMorgan’s Revenues & Expenses Changed Over Recent Quarters?

  • In Q1 2019, JPMorgan reported Total Revenues of $29.1 billion, up by 4% y-o-y. This could be attributed to a 9% increase in consumer & community banking (CCB) revenues coupled with an 8% jump in Commercial Banking revenues – which more than made up for a 6% drop in Corporate & Investment Banking (CIB) revenues.
  • Although Investment Banking revenues (which comprise of fees from advisory & underwriting services) increased by 9%, an 18% drop in FICC trading and a 14% decline in equity trading revenues hurt CIB revenues. With securities trading activity remaining depressed for a second consecutive quarter due to concerns surrounding the U.S.-China trade war, the division is expected to report a year-on-year decline in revenues for Q2 2019 too.

JPMorgan’s Key Revenue Drivers

Security Trading Revenue: Trading revenues have largely trended lower in the last few quarters driven by widening of credit spread, lower equity valuations and slower markets. In Q1 2019, JPMorgan reported a drop of 17% y-o-y in its security trading revenues. We expect this trend to continue in subsequent quarters leading to a 5% y-o-y drop in trading revenues for 2019.

Investment Banking Revenue: In Q1 2019, JPMorgan reported Investment Banking revenue of $1.8 billion which was 9% higher than the figure for the previous-year period. While M&A Advisory fees improved 12% y-o-and Debt Origination fees jumped 21%, weak IPO levels for the quarter led to a 23% reduction in Equity Underwriting fees. We expect Global M&A and Debt Underwriting deal volumes to remain upbeat for the rest of the year, even as equity capital market volumes pick up over the second half of the year – driving investment banking revenues higher for full-year 2019.

Net Interest Yield: JPMorgan reported a Net Interest Yield of 2.56% in Q1 2019 which was 8 bps higher than the figure for the previous year. This coupled with higher loan balance and deposit margins had resulted in a Net Interest Income of $14.5 billion, up by 9% y-o-y for the first quarter. While the yield figure is unlikely to have changed in Q2, an increase in interest-earning assets (driven by higher lending activity) should boost the net interest income figure further in 2019.

JPMorgan’s Outlook For Full Year 2019

  • We expect JPMorgan to report $112.6 billion in Total Revenues for 2019, which is 3.3% higher than the figure for 2018.
  • Consumer & Community Banking (CCB) is expected to witness revenue growth of roughly 3% due to an increase in Net Interest Income across both Mortgage loans and Credit Card segments. However, an expected decline of 2.7% in Corporate & Investment Banking revenues will partially nullify the impact on the top line.
  • Although Total Expenses are expected to increase by 1% y-o-y to $69 billion driven by a 28% jump in loan loss provisions, Net Income would grow by 5.6% y-o-y as growth in revenues would offset the impact of higher expenses.
  • JPMorgan is expected to have repurchased $5.3 billion worth of shares in second quarter. We expect the same trend to continue in subsequent quarters and help its EPS figure reach $10.04 for FY 2019.
  • EPS of $10.04 coupled with our forward P/E multiple of 11.9x represents a price estimate of $120 for JPMorgan’s stock – a figure that is roughly 5% ahead of the current market price.

Do not agree with our forecast? Create your own forecast for JPMorgan by changing the base inputs (blue dots) on our interactive dashboard.

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