JPMorgan’s stock (NYSE: JPM) has lost 23% YTD, as compared to the 10% decline in the S&P500 over the same period. Further, the stock is currently trading at $123 per share, which is 12% below its fair value of $139 – Trefis’ estimate for JPMorgan’s valuation. The bank missed the consensus estimates of revenues and earnings in the second quarter of 2022. It reported net revenues of $30.7 billion – marginally higher than the year-ago period. The commercial banking unit grew 8% in Q2, followed by a 5% rise in the asset & wealth management divisions. Notably, both the segments benefited from an increase in net interest income (NII) driven by higher deposit margins and growth in loans. On the flip side, the corporate & investment bank posted a 10% y-o-y decline in revenues driven by lower investment banking fees. Further, the consumer & community banking revenues decreased 1% due to lower card income, and a drop in mortgage fees & related income, offsetting the positive effect of an 8% increase in segment NII. Overall, the adjusted net income decreased 29% y-o-y to $8.2 billion, primarily due to an unfavorable build-up in provisions for credit losses. Further, the firm has temporarily suspended its share repurchase program.
The bank’s revenues marginally increased to $121.7 billion in 2021. While the corporate & investment banking, commercial banking, and asset management segments reported growth in the year, the gains were largely offset by lower revenues in consumer & community banking and corporate divisions. Notably, the consumer & community banking segment mainly suffered due to lower NII in 2021. However, with the Federal Reserve increasing the interest rates in 2022, interest income has recovered over the first two quarters. On the flip side, investment banking revenues for the first half of 2022 fell by 44% y-o-y due to lower deal volume. Further, consumer & community banking also saw negative growth due to a 16% drop in the non-interest revenues, offsetting the positive effect of higher NII. Altogether, the firm’s net revenues for the first half of 2022 were $61.4 billion – down 2% y-o-y.
The NII is likely to improve over the subsequent quarters due to an improvement in the interest rates. We estimate JPMorgan’s revenues to touch $127.5 billion in FY2022. Additionally, JPM’s adjusted net income margin is likely to decrease to around 27%, leading to an adjusted net income of $34.4 billion and an annual EPS of $11.45. This coupled with a P/E multiple of just above 12x will lead to the valuation of $139.
|S&P 500 Return||4%||-10%||91%|
|Trefis Multi-Strategy Portfolio||5%||-9%||258%|
 Month-to-date and year-to-date as of 8/19/2022
 Cumulative total returns since the end of 2016