JPMorgan Chase (JPM -1%) is trading modestly lower after its Q2 earnings report. The company posted a healthy EPS beat, with revenue rising 22% year-over-year to $50.8 billion, surpassing expectations. CEO Jamie Dimon was absent from the call due to overseas travel, but he provided insights in the press release.
- JPM reported a consolidated provision for credit losses (PCL) of $3.05 billion, including net charge-offs of $2.2 billion and a net reserve build of $821 million. Net charge-offs increased by $820 million, mainly driven by Card Services. Last year's provision was $2.90 billion, with a net reserve build of $1.5 billion and net charge-offs of $1.4 billion.
- In the Consumer & Community Banking (CCB) segment, revenue rose 3% year-over-year to $17.70 billion. Banking & Wealth Management revenue fell 5% to $10.4 billion. Home Lending revenue surged 31% year-over-year to $1.32 billion. Card Services & Auto revenue increased 14% to $6.01 billion, reflecting higher net interest income and card income.
- CCB opened over 450,000 net new checking accounts. Client investment assets grew 14% to $1.0 trillion, with a record number of first-time investors. Card loans increased by 12%, driven by robust customer acquisition of 2.4 million. In the Commercial & Investment Bank (CIB) segment, revenue rose 9% year-over-year to $17.92 billion. Investment Banking revenue jumped 46% year-over-year to $2.5 billion. Asset & Wealth Management segment revenue increased 6% year-over-year to $5.25 billion.
- JPM noted that market valuations and credit spreads suggest a benign economic outlook, but the company remains cautious about potential tail risks, especially given the complex geopolitical situation.
- While progress has been made in reducing inflation, JPM highlighted ongoing inflationary pressures, including large fiscal deficits, infrastructure needs, trade restructuring, and global remilitarization. The company expects inflation and interest rates to remain higher than market expectations, with the full effects of quantitative tightening still uncertain.
Overall, the positive EPS and revenue results, along with strong growth in investment banking and home lending, are somewhat offset by a significant increase in PCL. The net reserve build of $821 million was unexpected after a net reserve release of $72 million in Q1. Despite generally positive comments, this build suggests JPM has some short-term economic concerns.
Wells Fargo (WFC -7%) and Citigroup (C -2.8%) also reported lower earnings this morning, adding to concerns ahead of other banks' reports next week.
