JPMorgan Profit’s Surges

Looks I got another one right. I said to expect a big earnings surprise from JPMorgan Chase (JPM), and that’s what we got. The bank earned $1.09 a share which smashed Wall Street’s consensus of 71 cents a share.
The problem is that despite the earnings surprise, JPM’s business still has major weak spots:

Chief Executive Officer Jamie Dimon, 54, said he isn’t satisfied with the results, even though they surpassed the most optimistic analyst’s estimate, because consumer lending charge- offs and late payments remain high. A 7.6 percent decline in revenue prompted Shannon Stemm, an analyst for Edward Jones & Co. in St. Louis, to question whether the profit report masked weakness in JPMorgan’s main businesses.
“The results beat estimates by so much because of the large reserve release,” Stemm said. “Revenue fell quarter over quarter and year over year, largely driven by weaker investment- banking and fixed-income trading results, which were down because of the volatile trading environment.”

Whenever a bank releases its earnings, there’s always a debate about quality. Are they properly reserved or not? You can do a lot by messing with your provisions for credit losses. Interestingly, JPM has been buying back stock but a dividend increase is still a ways off.

Dimon said last month that it may be “too ambitious” to expect a dividend increase by the end of the year. Share repurchases may come first because they don’t have to be sustained like a dividend boost, he said.

Yes, and share repurchases never have to be filled, just announced. I’m glad to see that retail banking is doing better, but considering how much effort the government has directed towards helping banks, the overall improvement isn’t very impressive. JPM could be a good buy soon, but not yet.

Posted by on July 15th, 2010 at 11:18 am


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