JP Morgan Earnings Report Beat Analyst Expectations
Last week, J.P. Morgan, the largest US bank by market capitalisation ($459.85 billion), released its financial report for the second quarter of 2021, beating Wall Street’s estimates by no small feat.
Earnings
The earnings per share figure ($3.78) beat estimates by 17.76%, representing a 174% increase when compared with the Q2 2020 figure of $1.38 earnings per share.
The boost in earnings recorded this quarter was bolstered from the release of loan loss reserves of $30 billion. The loan loss reserves were built up in anticipation of further loan defaults from last year. Thankfully, as the economy recovers from the pandemic, loan defaults are far below expectations.
Revenue
The revenue recorded also beat analyst expectations by 5.02%, but went down by 8% based on Q2 2020 figures. Across board, J.P. Morgan recorded increased revenues on a year-on-year basis. Consumer and community banking revenue was up 3%, corporate and investment banking revenue was up 1%, commercial banking revenue was up 3%, while asset and wealth management was up 20%.
Bond trading revenue declined massively by 44% year-on-year, while the equities trading desk turned in a revenue 13% higher than Q2 2020. Equities trading revenue was not enough to offset the decline in bond trading revenue as total trading revenue also declined by 30% from Q2 2020. The year-on-year decline in trading revenue was much expected, given the unusually high trading volatility experienced during last year’s pandemic.
Dividend Payouts & Share Buybacks
Last year, the Federal Reserve limited dividend payouts and banned large banks like J.P. Morgan from buying back stocks. This ban was to ensure that banks can ensure capital stability and support the economy in the event of an economic downturn. As the US economy recovers from the hit of the pandemic, the Federal Reserve has also lifted the ban. Banks like J.P. Morgan, Wells Fargo, etc. have since resumed share repurchases. J.P. Morgan embarked on share repurchases earlier during the year and has plans to make even more repurchases for the rest of the year.
The bank’s CEO, Jamie Dimon, announced more dividend payments and share buybacks into the next quarter. Share buy backs or share repurchases happen when a company decides to reduce outstanding shares by buying back previously issued shares from investors in a bid to consolidate ownership or to increase equity value, thus attracting more investors. Repurchased shares, which reduces the number of outstanding shares, will be retired. Fewer shares will in turn lead to a higher share price.
Stock Performance
J.P. Morgan’s stock has done well this year, outperforming the broader market.
Year-to-date, the stock gained 22.39%, compared to the S&P 500 index performance of 15.67%.
