Skip to Content
Stock Analyst Update

2 Things That Can Pinch JPMorgan's Earnings Growth

We continue to expect positive results from the narrow-moat bank, but there are signs of both macro and micro pressures that can slow earnings growth.

Mentioned:

Narrow-moat  JPMorgan Chase (JPM) reported solid second-quarter results with net income on a reported basis increasing 18% to $8.3 billion, or $2.29 per diluted share, compared with $7 billion a year ago. Despite increasing concerns about global trade policies and a flattish U.S. interest rate yield curve, the underlying economy is still healthy and the company generated a return on equity of 14% and return on tangible common equity of 17% during the quarter. Coinciding with the release of 2018 Comprehensive Capital Analysis and Review results, the company announced that it is increasing its quarterly dividend to $0.80 from $0.56 effective in the third quarter and plans to repurchase up to $21 billion of shares in the next four quarters. We don't anticipate making a material change to our $103 fair value estimate for JPMorgan and believe that shares are fairly valued.

We continue to expect positive results from JPMorgan, but there are signs of both macro and micro pressures that can slow earnings growth. The interest rate yield curve has remained stubbornly flat with the Federal Reserve having increased the Fed Funds rate 50 basis points since the beginning of 2018 to a range of 1.75% to 2%, but the 10-year Treasury yield has remained fairly range bound between 2.8% and 2.9% since February. This flatter yield curve can restrain net interest income growth, as competition for deposits increases the rate banks pay on deposits, while limiting the yield from banks' longer dated interest earning assets. Besides general rate environment pressure, banks are apparently competing more in certain loan categories like residential and commercial real estate loans. This may keep yields on these loans relatively low, while as the same time stunting loan growth, as JPMorgan becomes more selective.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.