5 things investors learned from JPMorgan Chase's earnings

By Steve Gelsi

JPMorgan beat on revenue, but provisions for credit-card losses grow as economy starts to cool and interest rates remain high

JPMorgan Chase & Co. beat revenue estimates and reported a higher profit for the second quarter when including one-time items such as its sale of stock in Visa Inc., but the bank put aside more money to cover credit-card losses as higher-for-longer interest rates weigh on consumers.

Despite record levels for stock prices and rising bullishness on Wall Street, the bank didn't stray from its more conservative outlook on the risk to the economy from inflation, geopolitical upheaval and other potential pitfalls.

Overall, the results failed to spark further gains in JPMorgan Chase's stock (JPM), which has been outperforming the broader market this year.

At last check, JPMorgan's stock was down 0.8% on Friday, while maintaining a jump of 21.2% so far this year.

Here are five takeaways from JPMorgan Chase's second-quarter results

Provisions for credit-card losses rose

JPMorgan Chase said the unit in charge of consumer and community banking reported provision for credit losses of $2.64 billion, up from $1.86 billion in the year-ago quarter and ahead of the first-quarter figure of $1.90 billion.

The number reflects net charge-offs of $2.1 billion, up by $813 million, and a net reserve build of $579 million.

These figures contributed to a roughly 13% decline in earnings in the Consumer and Community Banking (CCB) business, to $4.2 billion.

The bank said these moves are part of a trend for credit conditions to return to normal levels after years of artificially low interest rates.

But it continues to see lower-income customer struggling to make their credit card payments.

JPMorgan's profit was down on an adjusted basis

As one of many major banks that hold ownership stakes in Visa Inc. (V), JPMorgan Chase was able to generate a net gain of $7.9 billion from the sale of stock in the credit-card giant during the quarter.

That boost helped JPMorgan generate higher net income than a year ago, but excluding it, the bank's profit fell.

Other one-time items included a $1 billion donation of Visa shares to pre-fund contributions to the bank's grant program for small businesses and $546 million of net investment securities losses.

Including those, JPMorgan's second-quarter net income was $18.15 billion, or $6.12 a share.

Without them, JPMorgan's net income was $13.1 billion, or $4.40 a share. That's below the firm's year-ago net income of $14.47 billion as well as the first-quarter result of $13.42 billion.

Bank seeing M&A interest, but IPOs are still thin on the ground

After chalking up a stronger quarter for investment banking, Financial Chief Jeremy Barnum told analysts that the bank is seeing more traction for deal-making from its clients.

"In terms of dialog and engagement, it's definitely elevated," Barnum said.

The dialog on equity capital markets deals remains higher than year-ago levels, signaling continued health in the business in the third quarter.

Talk around mergers and acquisitions also remains "quite robust," Barnum said.

However, while the market for initial public offerings is improving, it remains "not quite as good as you would expect" partly due to the lackluster performance of stocks in the mid-cap technology growth sector, he said.

Private companies that may be considering an IPO also have to accept that company valuations have come down significantly since 2021. This could also be a headwind for IPOs, he said.

The bank also remains cautious on debt capital markets activity for the second half of the year.

JPMorgan delivered a solid revenue beat

In terms of top-line numbers, JPMorgan's second-quarter revenue of $50.2 billion rose from the year-ago figure of $41.3 billion and delivered a solid beat over the FactSet consensus estimate of $42.23 billion.

Much of those gains came from JPMorgan's Commercial & Investment Bank (CIB) unit, which booked a 10% increase in markets revenue, including a 5% jump in fixed-income revenue and a 21% jump in equity-markets revenue.

Chief Executive Jamie Dimon highlighted a 50% rise in investment-banking fees, although it was off a low base in the year-ago period.

"People have been talking about depressed banking fee wallet for some time and it's nice to see not only the year-on-year pop from a low base but also a nice sequential improvement," Barnum said on the firm's call with analysts.

Jamie Dimon sees some 'benign' signals but doubles down on conservative outlook

Dimon has run JPMorgan Chase with what he calls a "fortress" balance sheet and said he sees no reason to shed his more skeptical economic outlook than many on Wall Street.

But with consensus growing about an interest-rate cut by the U.S. Federal Reserve, Dimon was arguably a bit more dovish in his comments on Friday because he used the word "benign" in passing.

"Market valuations and credit spreads seem to reflect a rather benign economic outlook," Dimon said, in recognition of the optimism that has fueled gains in the overall stock market and bank stocks this year.

However, he quickly followed that statement with his usual dose of reality as he sees it: "There are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world."

-Steve Gelsi

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07-13-24 0512ET

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