What are the concerns behind J.P. Morgan's earnings report?

Recently, Wall Street promoted value stocks, and bank stocks were pushed to the forefront. J.P. Morgan Chase took the lead in releasing the latest first-quarter results. Overall, it fell short of expectations, and the trend after opening was also quite poor. From J.P. Morgan Chase's financial report, we can see some hidden concerns. The detailed analysis is as follows:

By business, J.P. Morgan Chase in the fourth quarter$JPMorgan (JPM.US)$ Consumer and community banking (CCB) net revenue was US$12.275 billion, or US$12.728 billion; corporate and investment banking (CIB) net revenue was US$11.534 billion, compared to US$11.352 billion in the same period last year; commercial banking (CB) net revenue was US$2,612 billion, compared to US$2,463 billion; and asset and wealth management (AWM) net revenue was US$4.473 billion, compared to US$3.867 billion in the same period last year.

1. Global IB fees rose 37%, thanks to corporate and investment banking and commercial banking operations due to unprecedented M&A activity, active acquisition financing markets, and strong IPOs。However, as we all know, last year was a huge year for US stock IPOs. A large number of technology stocks were listed at high valuations, and J.P. Morgan can be described as making a lot of money. However, against the backdrop of interest rate hikes, the recent valuation of technology stocks has been severely compressed. It is conceivable that J.P. Morgan's 2022 IPO revenue will most likely decline compared to '21. This is one of the potential concerns.

2. Market business revenue fell 11% compared to last year's record fourth quarter, but increased 7% compared to the fourth quarter of 2019, driven by strong stock performance. Asset & Wealth wealth management (Asset & Wealth Management) achieved strong results. Long-term products across all channels and regions showed positive growth of $34 billion, and loans continued to grow strongly, up 18%, mainly driven by securities loans. In terms of consumer and community banking, customer investment assets increased by 22%, rising market levels and positive net flows. The combined increase in debit and credit card spending was 26%, supporting an acceleration in the growth of credit card loans, which increased by 5%. Auto loans are still high, up 7%, although a lack of car supply has slowed issuance to $8.5 billion, a 23% drop. Home loans had another strong quarter, with disbursements of $42 billion, an increase of 30%.

Consumer and Community Banking: Achieved net profit of US$4.2 billion, a decrease of 2%. Net revenue was $12.3 billion, a decrease of 4%: the business's performance was relatively sluggish

Net revenue from consumer and commercial banking was $6.2 billion, up 7%, due to the impact of asset management fees on clients' investment asset growth, the impact of PPP, including accelerated confirmation of deferred processing fees due to loan exemptions, and an increase in debit transactions. Net income from housing loans was US$1.1 billion, a decrease of 26%, mainly driven by a decline in production margins, partly offset by an increase in net interest income brought about by a decrease in early repayment amounts. Card&Auto's net revenue was $5 billion, a decrease of 9%, due to the increase in card acquisition costs and the decline in Auto's operating leasing revenue

Non-interest expenses were $7.8 billion, an increase of 10% due to increased compensation, technology, and marketing expenses as we continue to invest and grow our business

Net income from credit loss reserves was US$1.1 billion, reflecting the release of US$1.6 billion in reserves, mainly under the continued elasticity of the macroeconomic environment, compared to US$900 million in reserves released in the previous year. Driven by Card, net write-off was $515 million, a decrease of $302 million

Corporate and investment banking business CIB: Achieved net profit of US$4.8 billion, a decrease of 9%, net income of US$11.5 billion, an increase of 2%

Banking revenue was US$5.3 billion, up 28% year over year. Investment banking revenue was $3.2 billion, up 28%, mainly driven by rising investment banking expenses (up 37%) and mainly by rising consulting fees。 Equity investment income was $1.8 billion, an increase of 26%, including net income from equity investments. Excluding these net earnings, revenue increased 7%, mainly driven by increased fees and deposits, but was largely offset by a reduction in deposit margins. Loan income was US$263 million, up 36% year over year, mainly because compared with the previous year, losses on equity and liability loans hedged in market value declined.

Revenue from market and securities services was $6.3 billion, a decrease of 13%. Market revenue was US$5.3 billion, a decrease of 11%.Revenue from the fixed income market was $3.3 billion, down 16%, due to the challenging interest-rate trading environment and the decline in revenue from credit, money, and emerging markets compared to strong growth in the same period last year. Stock market revenue was 2 billion US dollars, a decrease of 2%, due to the decline in derivatives revenue, but was mainly offset by the increase in Prime revenue. Securities service revenue was US$1.1 billion, the same as the previous year. Non-interest expenses were $5.8 billion, an increase of 18%, mainly due to increased remuneration costs, including investments, and increased brokerage fees and legal fees associated with transaction volume. The credit loss provision was a net gain of $126 million, driven by the release of net reserves.

Commercial banking business: performance is also relatively average

Net profit was $1.3 billion, a decrease of 38% due to a decrease in the release of credit reserves compared to the same period last year.

Net income was $2.6 billion, an increase of 6%, thanks to an increase in investment banking revenue.

Non-interest expenses were $1.1 billion, an increase of 11%, mainly driven by business investments, including technology and front-office recruitment, as well as higher volume and revenue-related expenses.

The credit loss provision was a net gain of $89 million, driven by the release of net reserves. Net write-off of accounts was $8 million

Asset and wealth management business: Net profit of $1.1 billion, an increase of 46%, and net revenue of $4.5 billion, an increase of 16%:It was mainly driven by rising management fees and growth in deposits and loans, partly offset by a reduction in deposit profit margins.

Non-interest expenses were $3 billion, up 9% year over year, due to increased performance-related compensation and distribution costs, increased structural expenses, and increased business investment, partly offset by lower legal costs compared to the previous year.

Assets under management were $3.1 trillion, an increase of 15%, thanks to cumulative net inflows and higher market levels

Company business: Net loss was $1.1 billion compared to last year's net loss of $358 million.

The quarter included higher tax spending, which reflects the impact of companies' estimated full-year anticipated tax rates, and a reversal in the impact of changes in federal tax methods on states and localities. Net income was a loss of US$545 million, compared to a loss of US$249 million in the same period last year. Net interest income was a loss of US$681 million, an increase of US$160 million, mainly due to rising interest rates, but was mainly offset by continued growth in deposits. Non-interest income was $136 million, a decrease of $456 million, mainly due to a decline in net income from traditional equity investments. Non-interest expenses were $251 million, a decrease of $110 million.

In summary, J.P. Morgan Chase's earnings report doesn't prove anything for itself. Many business lines also have hidden concerns, and value stocks are not “valuable.” We still recommend focusing on growth stocks that have surpassed the decline.

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