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Stock Analyst Update

In Q2, JPMorgan Again One of the Highest Quality Banks

As we’ve long pointed out, JPMorgan remains arguably one of the strongest and highest quality franchises under our coverage, and this showed in second quarter results.

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Wide-moat rated JPMorgan Chase (JPM) reported stronger-than-expected second quarter results with net income coming in at $4.7 billion, or $1.38 per diluted share, beating S&P Capital IQ consensus estimates. Return on tangible common equity was 9% and was impacted by a number of items, including a negative impact from another large buildup in credit reserves, and a positive impact from a markup in the bridge loan book and valuation adjustments on derivatives. Management had previously called out the potential for the reversal in the bridge book, and the provisioning build was fairly close with what we had expected. Net revenue was up 15% year over year while expenses were up 4% over the same period. Net interest income came in at $14 billion, down 4% year over year. Overall, balance sheet growth is helping to cushion net interest income, while excellent investment banking and trading results, and strong mortgage results, are helping to cushion fee income. As a result, JPMorgan remains solidly profitable, even in a difficult time. JPMorgan extended the suspension of its share repurchase program till at least the end of the third quarter, though the bank is still committed to paying dividends. As we’ve long pointed out, JPMorgan remains arguably one of the strongest and highest quality franchises under our coverage, and this showed in second quarter results. After updating our forecasts with these results, we are lowering our fair value estimate to $111 from $113. This is entirely due to our inclusion of a 50% chance that Biden is elected and that his tax hikes are enacted, which subtracted $4 from our FVE, otherwise we would have increased our FVE by $2. Provisioning and the future economic environment remain key uncertainties for JPMorgan, but so far, so good.

 

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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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