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Key Points to Note Before JPMorgan Reports Tomorrow

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Since banking stock results are closely linked to the Fed’s monetary policy, it goes without saying that JPMorgan JPM stands to benefit from the ongoing interest rate hikes. Although loan balances come under pressure when this happens, the company continued to see higher credit card spending (on travel) in the last quarter.

Home loan originations were already taking a hit, however, as expected. Additionally, the higher rates and market uncertainty appear to be contributing to increasing deposits, which is a pressure on the net interest income.

JPMorgan has been beating net interest income estimates in recent quarters (3.3% in the last quarter), although there were misses in prior quarters. In the last five quarters, it posted an average surprise of 0.05%. The trend is positive here.

Increased caution related to market uncertainty is negatively impacting the investment banking business, which makes up a substantial part of revenues. In the last quarter, JPMorgan missed analyst estimates of investment banking fees by 22.0%.

Because of the strong markets in 2021, it has generated positive surprises in prior quarters. The average positive surprise in the last five quarters (including the substantial negative surprise in the last quarter) was 13.9%. The trend is negative here.

JPMorgan’s financial health can be seen from the following:

Non-performing loans in the last five quarters were 4.9% short of estimates. Which is a positive.

Non-performing assets were down 7.5% on average over the last five quarters, which is also positive.  

Interest earning assets posted an average positive surprise of 2.5%.

The Tier 1 capital ratio (a measure of the bank’s ability to cover risk weighted assets with its most liquid assets) averaged a negative surprise of 0.05%. But since the ratio is still well above standard norms, there is not much concern here.

Overall, JPMorgan appears to be in good health, which is the reason that there’s a Zacks Rank #2 (Buy) rating on the shares. Given the current operating environment, the areas of concern are loan balances and investment banking.  

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