JPMorgan Chase & Co. (JPM), the largest US bank by assets, is the first in a series of megabanks to report first-quarter results this week as earnings season begins.
The company was a strong outperformer in the banking sector, which has significantly underperformed the broader market this year amid concerns over US banks’ ties to Russia and concerns over an economic slowdown. Still, JPMorgan’s shares are down 15.8% year-to-date.
JPMorgan released its quarterly results on Wednesday. This is where the metrics stood compared to expectations, according to analysts polled by Bloomberg.
revenue (adjusted): $31.59 billion vs $31.44 billion expected, $30.35 billion in Q4
earnings per share (adjusted): $2.63 per share vs $2.72 expected, $3.33 per share in Q4
Wednesday’s report is poised to reflect a lackluster quarter for the banking powerhouse. JPMorgan’s revenue is expected to fall 5% from the same period last year, while analysts are expecting earnings per share (EPS) to come in 40% below Q1 2021.
One of the key metrics investors will be watching closely is the company’s net interest margin, the difference between the bank’s income from its lending operations and the interest it pays to depositors. The number should benefit from higher interest rates, but if the Federal Reserve hikes rates too aggressively and the economy plunges into recession, JPMorgan lending could take a hit.
According to data from Bloomberg, the bank’s net interest margin is expected to be 1.65%, down 1 basis point from last quarter. Net interest income is expected to be down 1% from the fourth quarter but up 5% from the same period last year.
Last year, JPMorgan and its peers got a boost to profits by releasing COVID-era loan loss allowances, reserves that financial institutions accumulated at the start of the pandemic to cushion the potential shock that borrowers might default on their debts. However, the financial boost from the reserves that boosted earnings in 2021 is expected to fade. Bloomberg analysts expect reserve releases of just $900 million, compared to $1.8 billion in the fourth quarter.
The story goes on
Trading revenue is expected to fall 21% compared to the first quarter last year, while investment banking fees are also expected to fall 24% after activity stalled in the quarter amid geopolitical tensions between Russia and Ukraine and higher interest rates weighed on markets .
JPMorgan CFO Jeremy Barnum warned in a call with reporters last quarter of “headwinds” from higher operating expenses, after the bank attributed an 11% increase in operating expenses to $17.9 billion to a compensation increase. The figure is expected to continue rising to $19.5 billion in the first quarterly report.
“It’s true that labor markets are tight, that there’s slight labor inflation, and it’s important for us to attract and retain the best talent and pay competitively according to performance,” Barnum said on the bank’s conference call for that fourth quarter.
MATTAPAN, MA – NOVEMBER 23: Jamie Dimon, CEO of JP Morgan Chase, speaking during a visit to Mattapan, MA to attend a ribbon cutting center for Chase’s new Mattapan Community Center on November 23, 2021. (Photo by David L. Ryan/The Boston Globe via Getty Images)
Following the first quarter results, JPMorgan CEO Jamie Dimon is expected to provide his views on geopolitical risks and the Fed’s plans to tighten monetary policy. The bank chief warned in his carefully read annual letter to shareholders earlier this month that Russia’s ongoing invasion of Ukraine is expected to significantly slow the US and global economy.
Dimon will also likely have questions about his comments on JPMorgan’s $1 billion loss over time due to the war. He didn’t elaborate on an exact timeframe or how the estimate was calculated, but a spokesman for JPMorgan told Yahoo Finance after Dimon’s letter was released that the loss could be related to potentially distressed assets affected by the war.
Although the bank said it was not concerned about its direct involvement in Russia, the institution is concerned about the “secondary and concomitant impact” that the crisis and sanctions are having on so many companies and countries.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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