JPMorgan Chase reported a record jump in profits. This was boosted by a release of $3bn in reserves which were previously held as a result of the pandemic, which are now no longer required, thanks to a robust turnaround in the US economy.
The strong results were despite a slowdown in trading activity which were muted due to a return to less volatile markets. Other businesses more than offset the slowdown in trading, reflecting the diversity of the group as well as a strong economic growth in the economy.
JPMorgan Chase, with a market cap of $465bn, is one of the largest and most complex financial institutions in the US, with more than $3 trillion in assets and four major business segments.
These consist of, consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management. With a more diverse business model than its investment banking peers, and the powerful Chase Manhattan consumer retail brand. This helps reduce the cyclicality and earnings volatility versus that of its peers, making for more predictable earnings forecasting.
Equity markets trading were positive with revenue up by 13%, as were underwriting fees, due to increased corporate activities in the investment banking segment. This includes new listings and corporate restructuring, with a positive outlook in corporate activity for the rest of 2021.
Loans in consumer banking declined by 12% however, there was an increase in spending as credit card spending rose 22%. The quality of the credit book was significantly better due to lower defaults. The outlook for this division looks to be positive with increases in employment, stimulus cheques, and dovish monetary and fiscal policies. These are all likely to prevail for the time being, resulting in a positive outlook for the sector.
Net income increased to $11.8 bn, equal to $3.78 per share, vs $1.38bn a year earlier. Analysts were expecting $3.21 per share, making this a strong beat.
JPMorgan Chase is a quality share on an attractive 2.3% dividend yield, and should benefit from a steepening of the yield curve later this year. This should enhance the growth in interest income. With a ROE of 18%, strong management and innovative strategies, the share should be purchased into any price weakness. The price earnings ratio is around 12-13x, which is attractive. The company has sound growth prospects and the current share price of $157 is a testament to the capital growth of over 50% over the past 12 months. I am a long-term investor in the stock, owning it in our segregated portfolios.