JPMorgan Chase (JPM) kicked off bank earnings season with a profit and revenue miss, and it’s tough to see what could ignite JPM stock out of its recent funk before year-end.
After all, in another knock against JPM stock, the bank cautioned that sleepy trading volumes make for too-optimistic revenue forecasts for the current quarter. That’s essentially the same thing as a guidance cut, something the market never likes to hear.
Witness JPM stock dropping more than 3% in early Wednesday trading.
That said, this selloff is likely overdone. It’s not like investors were expecting much from JPM or for bank earnings season to begin.
The story for the big banks remains the same: Ultra-low interest rates have been weighing on bank profitability for years. At the same time, somnambulant trading — especially in fixed income, currencies and commodities — has been a drag on revenue for what seems like forever.
Whether it’s rate-hike uncertainty, an economic slowdown in China or volatility in commodities markets, the trading-volume story has dragged on and on. JPM said expect more of the same in the current quarter too.
This is not exactly a news flash. Revenue growth is brutally hard to come by. Just ask Bank of America (BAC) or Wells Fargo (WFC), which reported quarterly results on Wednesday.
The Street was clearly too optimistic on JPM’s quarter, but are investors really this shocked at what transpired at JPM in the most recent period? Tell the market something it doesn’t know.
JPM Stock Overly Punished
For the record, JPMorgan Chase earnings came to $6.8 billion, or $1.68 a share. On an adjusted basis — which is all the Street cares about — JPM earnings came to $1.32 a share. That was well short of analysts’ average estimate for $1.37 a share, according to a poll by Thomson Reuters.
Quarterly revenue of $23.5 billion fell short of analysts’ forecast of $23.7 billion.
Another quarter of lackluster trading volume was the main culprit for the shortfalls against expectations, but the reality is that three of JPM’s four main businesses suffered drops in operating profits.
Commercial banking, asset management and corporate and investment banking businesses all saw their bottoms lines reverse. In a sign of an improving U.S. economy, JPM’s consumer and community banking segment posted income growth.
As much as the domestic picture might be brightening, Federal monetary policy and global turbulence are making for tough times. As CEO Jamie Dimon said in a statement:
“We saw the impact of a challenging global environment and continued low rates reflected in the wholesale businesses’ results, while the consumer businesses benefited from favorable trends and credit quality.”
But none of this is new. JPM stock was already down 1.7% for the year-to-date before the selloff on earnings. Heck, it’s down almost 5% in the last month, a period in which the S&P 500 is actually sitting on a 1% gain.
No, it wasn’t a pretty JPM earnings report, but there’s nothing truly shocking here. The stock doesn’t look great for some kind of year-end run, but neither was it so terribly mis-priced. Heck, the price-to-book is down to 1.05.
JPM stock might not do anything for a while — a good, long while — but the sky is not falling. If you like JPM , there’s no reason to change your mind in light of third-quarter results.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
