JPMorgan Chase & Co (JPM) reported, on April 13, a 3.1 decline in its earnings for the first quarter of 2012. This was below what analysts on Wall Street had predicted. However, as last year the bank earned the most it had ever in a quarter, the dip is understandable.
The company is known as one of the banking giants and it has exposure in almost all of the banking businesses. It was also one of the first two banks to release its first quarter results. However, before we examine the results, let's do a short re-cap of last year's fourth quarter, so the two can be properly compared.
In the fourth quarter of last year, the bank made 90 cents per share. This was worse than the reported $1.12 of the same quarter the year before. However, this also included some items that are nonrecurring; this includes debit valuation adjustment, in which 9 cents were lost, and a benefit of 11 cents from a reduction of loan loss reserves. If those, and others, are not included, the bank earned 96 cents a share.
The managed net revenue ended up being $22.2 billion, which was down by 17% from the year before.
According to the company's report, the bank's net income for this quarter has fallen to $5.28 billion or $1.31 a share. This is compared to the $5.56 billion dollar income, or $1.28 a share, from the first quarter last year. During that time, there were many more shares outstanding, due to JPMorgan's buyback plan.
The lower earnings this year could also have something to do with fighting lower capital market revenues, a tough regulatory environment and low liquidity, to name a few examples. To look at it from the other perspective, however, a slowly improving retail banking performance, a reduction in reserves for future losses, and a steady increase in its credit card business could bring it back up.
JPMorgan's mortgage and fee revenue has gone up; it made $2 billion, as compared to the loss of almost half a billion dollars last year. Despite this increase, however, the company is still bracing for losses related to mortgages and other expenses.
This is, in part, because of the recent acquisition of Washington Mutual and Bear Stearns. In 2008, it acquired companies, and with it, a considerable amount of mortgage risk. JPM has reserved more than $2.5 billion to go towards litigation costs, including mortgage-related lawsuits, during the first quarter. It seems that it will be dealing with issues relating to the increased costs and losses that come with mortgage-related issues for quite some time.
JPMorgan has shown strong trading results. However, not all of the trades were advantageous for the company. Its response to this, however, was it makes investments for various clients, including reserves, large institutions and sovereign funds. It must hedge its client's risk before its own.
That is not to say that everything that has happened with the company has been horrible. There are some silver linings, if one is willing to risk investing in the company. Point of fact, most major banks in the United States, have done quite well, so far, in 2012.
JPMorgan's revenue has increased from $25.2 billion to $26.7 billion. That's an increase of 6%. Retail banking has earned $1.75 billion that includes checking, personal home loans and savings accounts. The company claims that this is a result of more customers paying their bills when they are due.
In fact, some elements are expected to entirely stabilize the revenue for the company and other major US banks. For instance, low interest rates, slow loan demand growth, and improving macroeconomic elements, like rising consumer spending and lower unemployment, could very easily have positive results.
The Federal Reserve has also released the results of the fourth round of stress tests. JPMorgan, as well as many other big banks, was given the green light for deploying capital to their shareholders. On the heels of this announcement, the bank increased its quarterly dividend by 20% to 30 cents a share. A new authorization of share repurchasing was also announced.
This is only the second time that the bank has increased its dividend since the recession.
It is for the reasons mentioned, as well as the reasoning behind the issues in the beginning, that its stock is a good decision for a short-term investment. The stock already has a steady dividend-yielding nature and the Federal Reserve cleared it for the most difficult stress test. This means that the company could survive another recession.
Although the stock is not being traded for less than it is worth, it is not to say that the company does not remain very promising; it has a very good balance sheet and a diverse business model.
In my opinion, there is a definite, though slight, upwards motion to the stock. It is a good choice for a short-term investment and, if the investor can ride out the risks, it will offer good results as a long-term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.