JPMorgan's Q1 Hit By Higher Expenses, Fee Decline

Wide-moat-rated JPMorgan (JPM) reported first-quarter earnings per share of $2.63, missing the $2.72 FactSet consensus but roughly in line with our $2.60 estimate. Revenue on a reported basis was $30.7 billion compared with our estimate of $31.2 billion, as fees came in a bit below what we had projected. While the bottom-line numbers sound dramatic, with net income down 42%, remember that we are going from an unusual period of recording provisioning benefits (a $4 billion benefit in the first quarter of last year) to a more normal period of recording provisioning as a cost ($1.5 billion in the current quarter). Preprovision net revenue was down only 15% year over year, and the bank still managed a return on tangible equity of 16%.

All of this largely fell in line with our forecasts. An increase in expenses was guided for, and investment banking was expected to cool off. Expenses were up only 2% year over year, a bit below what we forecast; it seems performance-based compensation may have been a key reason for this, as investment banking came in below our expectations. We were hoping for investment banking fees to maintain some momentum in the quarter, but they essentially fell back to 2019 levels. Trading fees outperformed, roughly offsetting the miss in investment banking. Mortgage fees and card fees came in a bit below our expectations, and card fees will be worth keeping an eye on. We expect the current $19.2 billion expense run rate to be maintained for the rest of the year.

These results fit our expectations, and we do not expect a material change to our $152 fair value estimate. We will pull forward some of the bank’s expected net interest income, but this will not change our longer-term view of its through-the-cycle earnings power. We view JPMorgan as a high-quality franchise at a reasonable price, with higher expenses today leading to an even better competitive position tomorrow.