JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, is the first among a lineup of mega banks set to unveil first quarter results this week as earnings season kicks off.
The company has been a strong outperformer in the banking sector, which lagged the broader market meaningfully this year amid concerns over U.S. bank ties to Russia and worries of an economic slowdown. Still, shares of JPMorgan are down 15.8% year to date.
JPMorgan is scheduled to release its quarterly results before the bell at 7:00 a.m. ET Wednesday. Here are the main metrics expected by analysts, based on Bloomberg consensus:
Wednesday’s report is poised to reflect a lackluster quarter for the banking powerhouse. JPMorgan’s revenue is expected to fall 5% from the same period last year, while analysts forecast earnings per share (EPS) to come in 40% below the first quarter of 2021.
Among key metrics investors will closely watch is the company’s net interest margin, the difference between the bank’s earnings on its lending activities and interest it pays to depositors. The figure stands to benefit from higher interest rates, but if the Federal Reserve hikes rates too aggressively and tips the economy into a recession JPMorgan’s lending activity may take a hit.
The bank’s net Interest margin is expected to come in at 1.65%, down 1 basis point from last quarter, according to Bloomberg data. Net interest income is likely to fall by 1% from the fourth quarter but rise 5% from the same period last year.
Last year, JPMorgan and its peers got a profit bump from the release of COVID-era credit loss allowances, reserves financial institutions accumulated at the start of the pandemic to absorb the potential shock of borrowers being unable to pay their debts. However, the financial boost from reserves that padded profits in 2021 is expected to wind down. Bloomberg analysts expect just $900 million in reserve releases, compared to $1.8 billion in the fourth quarter.
Trading revenue is expected to drop 21% compared to the first quarter of last year, while investment banking fees are also set to see a 24% decline after activity stalled during the quarter as geopolitical tensions between Russia and Ukraine and higher interest rates weighed on markets.
JPMorgan CFO Jeremy Barnum warned last quarter in a call with reporters of “headwinds” from higher operation expenditures after the bank attributed an 11% jump in operating expenses to $17.9 billion to a boost in compensation. The figure is expected to further increase to $19.5 billion in the first quarter report.
“It is true that labor markets are tight, that there’s a little bit of labor inflation, and it’s important for us to attract and retain the best talent and pay competitively according to performance,” Barnum said on the bank’s Q4 earnings call.
After the first quarter results, JPMorgan CEO Jamie Dimon is expected to share his views on geopolitical risk and the Fed’s monetary tightening plans. The bank chief warned in his closely-read annual letter to shareholders earlier this month that Russia’s ongoing invasion of Ukraine is expected to meaningfully slow the U.S. and global economy.
Dimon will also likely face questions about remarks he made regarding JPMorgan’s $1 billion loss over time due to the war. He did not elaborate on an exact time frame or how the estimate was calculated, but a spokesperson for JPMorgan told Yahoo Finance following the release of Dimon’s letter that the loss could be related to potential distressed assets impacted by the war.
Although the bank said it is not worried about its direct exposure to Russia, the institution is concerned about the “secondary and collateral effects” the crisis and sanctions pose on so many companies and countries.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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Source: https://finance.yahoo.com/news/jpmorgan-earnings-q1-2022-205901729.html