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Stock Analyst Update

Solid Finish to 2021 for JPMorgan Chase

Investments will weigh on expenses in 2022, leading us to lower our expectations.

JPMorgan Chase (JPM) reported decent fourth-quarter earnings per share of $3.33, beating the FactSet consensus of $3.01 and our own estimate of $2.87. Revenue on a reported basis came in at $29.3 billion compared with our estimate of $30.4 billion. The EPS beat was primarily attributable to lower provisioning than we expected.

Our biggest focus for JPMorgan remains on how interest-rate hikes will feed through into net interest income, how well fees can hold up given the bank’s higher exposure to investment banking and trading, how the expense base progresses given the bank’s continued investments in technology and growth, and how the bank’s growth initiatives contribute to revenue.

Overall, we were a bit surprised by the expense guidance. We had expected a potential increase in investment, but management flagged a roughly 30% increase in investment-related spending, along with a 6% increase in “structural” expenses, which we read as wage inflation. Also, the bank’s estimated rate sensitivity dropped compared with what was disclosed for the third quarter. These two changes will lead us to decrease what we may have expected in 2022. We had planned to increase our $149 fair value estimate by roughly $12 per share due to our updated tax rate assumptions; however, as we incorporate a higher increase in structural spending and investments, this will be tamped down.

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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.