I hadn’t expressed any opinion on JPMorgan Chase's (JPM) second-quarter earnings because I didn’t have a good “feel” for how they were going to shake out. Sometimes the numbers are pretty clear but I just didn’t have that clarity this time around.
From what I saw, it looks like Wall Street was pretty anxious about JPM and the entire banking sector. The Street was expecting JPM to earn $1.21 per share. The good news is that the bank reported Q2 earnings this morning of $1.27 per share.
Analysts have expected strength in the bank’s capital market business. On Thursday, J.P. Morgan said its investment-banking arm’s profit jumped 49%. The retail financial services business, meanwhile, reported a 44% slide in profit.
Credit-loss provisions were $1.81 billion, down from $3.36 billion a year earlier and $1.17 billion in the prior quarter. Many banks have seen earnings boosted by a reduction in loan-loss reserves as credit conditions improve.
J.P. Morgan reported a profit of $5.43 billion, or $1.27 a share, up from $4.8 billion, or $1.09 a share, a year earlier. The latest period included a net seven cent charge, due in part to costs of foreclosure-related matters. The prior-year period included a net benefit of 12 cents related to a reduction in loan-loss reserves.
Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, rose 7% to $27.41 billion.
Analysts polled by Thomson Reuters most recently forecast a per-share profit of $1.21 on $25.13 billion in revenue.
The bank resolved a number of legal problems during the quarter. Earlier this month, it agreed to a $228 million settlement with the U.S. Securities and Exchange Commission over claims it rigged municipal bond transactions. In June, it said it would pay $153.6 million to settle charges it misled investors by packaging complex securities tied to the housing market before its downturn.
Here’s a PDF from the company with all the details.
I added JPM to the Buy List this year because I felt the stock was underpriced. The shares had a great start to the year and broke $47 by early April. Ever since then, the stock has trended lower and it broke below $40 recently.
Three months ago, JPM reported earnings of $1.28 which was 12 cents above the Street’s consensus. With today’s earnings report, the company has delivered again. Going by yesterday’s close, JPM is going for an absurd 8.1 times earnings.
The bank got approval to raise its quarterly dividend from five cents per share to 25 cents per share. I think it’s pretty obvious the dividend can go a lot higher — probably even to 50 cents per share. Even by the current dividend, JPM yields 2.52%.