J.P. Morgan Earnings: Good News, Bad News

J.P. Morgan Earnings: Good News, Bad News

  • Posted Thursday, July 14, 2011 -
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J.P. Morgan Chase earnings were out earlier this morning, and the House of Dimon beat expectations for the 11th straight quarter, on earnings and revenue.

Was all rosy, though? Not entirely. There were some trouble spots that could be worth watching for as other banks report. Still, J.P. Morgan shares are up 3% before the bell. The financial sector could be an engine for the broader market today.

Deutsche Bank analyst Matt O'Connor poked around under the hood and came up with the good news and bad news:

The positives:

1) JPM continues to deliver solid/strong results in what seems like a mixed trading environment (at best).

2) Period end loans rose slightly (up 2% annualized) vs. 3/31 driven by growth in all wholesale segments (TSS and AM drove 60% of growth).

3) Mgmt intends to maintain current Basel 3 Tier 1 common of 7.6% as they do not intend to reach targeted levels ahead of schedule. This implies buybacks (which totaled $3.5b this qtr) could be more than expected.

The negatives:

1) Net interest margin was down a larger than expected 17bps given declining loan yields (we est a 10bp hit), higher deposit rates (-4bps) and higher short term borrowing costs (-2bps). Average loan yields declined 26bps, driven by card (incl a nearly 50bp decline in the core Chase book).

2) Mortgage and litigation costs (incl foreclosure, servicing, putbacks) totaled another $2.5b. This bring the 6 quarter total to about $20b.

3) Expense mgmt was good in ibank and commercial segments, but heavy investment spend is still evident in retail, card and asset mgmt.

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