Analyst Note
| Eric Compton, CFA |Wide-moat JPMorgan reported excellent third-quarter earnings, beating the FactSet consensus estimate of $3.00 per share with reported EPS of $3.74. This equates to a return on tangible common equity of 22%. The bank once again benefitted heavily from reserve releases, which totaled roughly $2 billion this quarter. Excluding the release of reserves, EPS was closer to $3.03 and the bank's ROTCE was closer to 18%. As we had expected, reserve releases are slowing down, and the latest release gets the bank pretty close to our estimate of “normalized” reserve levels. Although we believe that there are still potentially a bit more left in reserves for the bank to release, we think it might be less than a billion that remains on JPMorgan's books. Management essentially left its 2021 guidance unchanged, with the main update being a decrease in expected card net charge-offs to 2% for the year from 2.5%. After updating our projections, we are increasing our fair value estimate for the bank to $149 per share from $143. This change was driven by time value of money (roughly $2), lower expected credit costs and higher fees.