JPMorgan Earnings: Bumper Profits Driven by Strong Net Interest Income and Trading Revenue

Key Morningstar Metrics for JPMorgan Chase

• Fair Value Estimate: $168.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of JPMorgan Chase’s Earnings

JPMorgan Chase JPM earned bumper profits in the first quarter, even as it was adversely affected by an FDIC special assessment charge of $0.725 billion for uninsured deposits of certain failed banks during the banking turmoil of the previous year. Excluding that nonrecurring charge, the bank reported earnings per share of $4.63, a year-over-year increase of 13%.

The strong results were driven by solid net interest income and higher principal transaction (trading) revenue. After adjusting for the FDIC charge, the first-quarter numbers resulted in a return on tangible equity of 22%, substantially higher than management’s midcycle target of 17%.

While JPMorgan arguably has the strongest fundamentals of any bank franchise under our coverage, we think the market already recognizes this. We view the name as slightly overvalued, with better bargains available elsewhere. For investors only looking for the lowest-risk option among banks, JPMorgan still fits the bill, but we think expected returns reflect the lower-risk profile. We do not plan to materially change our $168 fair value estimate as we fully incorporate first-quarter results.

The bank kept its 2024 guidance for net interest income (about $90 billion) and card charge-offs (less than 3.5%) unchanged, with a slight upward revision to adjusted expense ($91 billion versus $90 billion) due to the FDIC assessment. Net interest income declined 4% on a sequential basis in the first quarter, largely in line with our expectations. We believe the bank is outearning its normalized level of NII by quite a bit and that investors should be cautious about simply extrapolating the current NII into the future. JPMorgan’s balance sheet is materially more asset-sensitive than those of its peers, so it will experience more pressure on net interest margins as interest rates decline.