Wall Street titan JPMorgan Chase (JPM) saw its shares drop overnight despite a double-digit surge in trading income. Analysts attributed the drop to comments by CEO Jamie Dimon over the ‘increasingly complex set of risks’ facing the economy.
Trading-driven quarter
For Q1, the bank reported revenue of $50.5 billion against $46 billion last year and a consensus of $48.6 billion. A large part of the ‘beat’ came from investment banking where Markets revenue hit a record $11.6 billion.
EPS came in at $5.94 against $5.07 a year ago and a consensus of $5.46, continuing the bank’s record of trouncing forecasts. Return on tangible equity, a key measure of profitability, increased to 23% from 21% a year ago.
In retail and commercial banking, average loans were up 1% while debit and credit card sales rose 5% by volume. Payment services delivered strong results with double-digit growth in deposits and fees.
The firm also achieved record net inflows in self-directed investing, and opened more than 450,000 new checking accounts. In Wealth Management, revenue increased 11% and the bank gathered $54 billion of long-term net inflows.
Complex set of risks
CEO Jamie Dimon said the US economy remained ‘resilient, with consumers still earning and spending and businesses still healthy’. He added: ‘Several tailwinds are supporting this resiliency, including increased fiscal stimulus, the benefits of deregulation, AI-driven capital investment and the Fed’s asset purchases.’
However, Dimon went on to express concern over what he called ‘an increasingly complex set of risks’ facing the economy. These include geopolitical tensions, trade undertainty, energy price volatility, large global fiscal deficits and ‘elevated’ asset prices.
‘While we cannot predict how these risks and uncertainties will ultimately play out, they are significant’, added Dimon. Hence the firm is preparing itself for ‘a wide range of environments’.
There was never any doubt JPMorgan would beat estimates as the core business is extremely well-run. Also, the US ecomony is ticking along for now, although that is largely down to fiscal stimulus rather than underlying demand.
With gasoline prices up sharply and labour markets softening, consumers aren’t going to stay ‘resilient’ forever. Moreover, the longer the Iran conflict drags on, the higher inflation could go and the bigger the second- and third-round impacts may be.
Volatile markets are a helpful tailwind for now, and JPM is dominant in areas like equity, debt and derivative trading. However, the problem with volatility is M&A and IPO activity, which are also important sources of income, could dry up later this year.
Read the press release here: https://www.jpmorganchase.com/ir/quarterly-earnings
