Aggressive candidate JPMorgan Chase & Co. (NYSE: JPM – $92.48) turned in better-than-anticipated second quarter earnings despite mixed results. The company earned and adjusted $1.71 a share in the quarter, exceeding estimates of $1.58 and year-earlier results of $1.55. Revenue on a reported basis rose to $25.5 billion from $24.4 billion a year earlier and higher than the $24.38 billion consensus estimate. Looking at performance by business group, Consumer & Community Banking profits declined 16%, year to year, on flat revenues, an 8% rise in expenses and increased credit costs. Higher net interest income and auto lease revenues were offset by credit card origination costs. Meanwhile, Corporate & Investment Bank profits advanced modestly despite lower revenues, which were held back by a decline in fixed-income markets. JPMorgan’s other two (smaller) business groups performed relatively well. Commercial Banking profits rose 30%, aided by strong middle market banking revenues and a release of some reserves previously set aside for possible losses on loans to oil and gas companies. Asset & Wealth Management results increased 20%, reflecting strong growth in assets under management and loans.
Looking ahead, the company is likely to encounter a few headwinds. In the Consumer business, credit card growth probably will remain strong, but card losses may hover just below 3% of loans and new card origination costs may remain high. In the Corporate Bank unit, trading revenues in the September term will compare with very strong year-earlier revenues. But JPMorgan had a healthy backlog of merger-related business at mid year, which should support good investment banking revenues. Given the strong results in the first half of 2017, however, I believe full-year net earnings could approach $6.70 per share. In 2018, assuming more of a benefit from higher interest rates, the Street has JPMorgan earning about $7.60 a share.
After passing the recent round of the Federal Reserve’s bank stress tests, the bank boosted the dividend on its common stock from $0.50 a quarter to $0.56, and announced plans to buy back $19.4 billion of common stock. Shares can be retained for long-term appreciation and the growing dividend adds to its total return appeal.