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JPMorgan Chase (NYSE:JPM) announced its performance figures for the first quarter of the year last Friday, and although the diversified banking group eked out record profits for the period, it only achieved the feat thanks to a particularly strong investment bank performance combined with lower provisions and non-interest expenses. [1] The sequential decline in revenues generated by all divisions besides the corporate & investment banking business is no doubt a cause for concern, especially as net interest margins continue to shrink.

We maintain a $53 price estimate for JPMorgan’s shares, which is about 10% above its current market price.

Fixed-Income Trading Business Carried Results For Quarter

The biggest advantage of the record low interest rate environment prevalent globally is arguably the boost in demand for debt and other unconventional securities that have been spurned over recent months. Always on the look out for better returns, investors have levitated toward companies only too happy to oblige by raising debt capital at good interest rates – a win-win situation for everyone involved.

JPMorgan did well to cash in on cyclical upswing in debt capital issuance as well as trading conditions witnessed in the first quarter by generating nearly $4.8 billion in trading revenues from fixed-income markets. That’s a good 50% higher than the $3.2 billion figure for last quarter and nearly the same as the figure for the first quarter of 2012.

Strong equity markets for the period and stable treasury services helped the corporate and investment bank division generate its highest quarterly revenue figure in recent years.

Fortunes For Traditional Banking Services On The Decline

For the first quarter of the year, JPMorgan’s outstanding loan portfolio shrunk marginally while deposits base saw a small increase. But there was a notable shift in the type of deposits, with interest-bearing deposits growing by about 4% and the non-interest-bearing deposits declining by a little more than 5%. The resulting higher interest expenses for the quarter, coupled with lower interest incomes on loans led to net interest margins (NIM) shrinking to 2.37% for the quarter – a sequential decline for the fifth quarter in a row. And things aren’t expected to improve in the near future with JPMorgan’s executives believing NIM figures will fall for a couple more quarters, at least.

Notes:

  1. JPMORGAN CHASE REPORTS RECORD FIRST-QUARTER 2013 NET INCOME OF $6.5 BILLION, OR A RECORD $1.59 PER SHARE, ON REVENUE 1 OF $25.8 BILLION, JPMorgan Press Releases, Apr 12 2013

Disclosure: No positions

Source: JPMorgan's Record Earnings Fail To Ease Concerns Over Slowing Revenue Growth