JPM Reports Huge Trading Miss As FICC Revenue Plunges To Lowest Since Financial Crisis
To anyone who carefully read yesterday's dismal Citi earnings report, which was a major disappointment in virtually every way and especially in the bank's FICC group, with the exception of Citi's core lending business which traders decided to focus on and push Citi's stock price 4% higher, today's disappointing JPMorgan results should not come as a surprise.
Actually, JPMorgan Q4 results were even worse than Citi's as they were a disappointment across the board, with both reported revenue of $26.1BN and "managed" revenue of $26.8BN missing consensus expectations of $26.9BN, while EPS of $1.98 was not only well below the $2.20 consensus, but was also the first JPM earnings miss in 15 quarters.
Commenting on the surprising miss, Wolfe Research's Steven Chubak wrote that the results were "very un-JPMorgan-like" and flagged the broad-based core miss, noting that JPMorgan "has a strong track record of delivering strong revenue/earnings beats and these results appear rather unremarkable. The lone bright spot was strong NII/core loan growth, but optimism here will likely be tempered by muted NII guidance for the first quarter, of "flat versus the prior quarter. "We expect shares to underperform, with the rest of the group likely to trade in sympathy."
Predictably, CEO Jamie Dimon, not used to posting disappointing results, quickly pivoted to politics, and said that "as we head into 2019, we urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment. Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone."
While JPM also posted a modest increase in Net Interest Income, which rose $1.2BN Y/Y to $14.5BN, noninterest income for the largest US bank declined $0.1BN to $12.3BN Y/Y and also declined $1.5BN Q/Q.
JPMorgan also reported 4Q compensation expenses $7.81 billion, right on top of the estimate $7.81 billion; while the 4Q provision for credit losses of $1.55 billion was surprisingly higher than the estimate $1.31 billion. More surprisingly, JPM said it built a $150 million reserve in the consumer unit - that was driven by loan growth. The question is why, i.e., what is JPM seeing that's causing them to want to set aside more money to cover souring loans?
The bank also reported a firmwide net reserve build of $15mm – net build in Consumer of $54mm and net release in Wholesale of $39mm. Additionally, in the wholesale bank, there was a $161 million reserve build, the bank says that reflects the downgrade of "select" commercial and industrial customers.
But while the top and bottom-line miss were hardly what the market was expecting, what has slammed JPM stock this morning is the huge miss in the bank's trading group, with 4Q FICC sales & trading revenue of just $1.86 billion, down $361MM from a year ago (and $1.0BN from Q3) and far below the estimated $2.29 billion. And while equity sales & trading revenue was in line, printing at $1.32 billion or right on top of the estimate $1.32 billion (if also down $278MM from Q3), the FICC plunge stole the show with the worst QFICC trading revenue since the financial crisis.
The bank blamed "challenging market conditions "for the revenue decline in FICC, while highlighting emerging markets as the one bright spot in Q4.
Also worth a quick note: while equity trading revenue looked solid at first glance, a good chunk of it is due to losses JPM suffered tied to the margin loan on Steinhoff in late 2017.
Elsewhere in the bank's investment bank group, 4Q investment banking revenue of $1.72 billion also missed estimates of $1.77 billion, virtually unchanged from a year ago.
Commenting on these disappointing trading results, JPM said that markets revenue of $3.2B was down 6% YoY, or down 11%YoY adjusted for the impact of tax reform and a loss on a margin loan in the prior year. Adjusted, Fixed Income Markets revenue was down 18% YoY, and Equity Markets revenue was up 2% YoY.
Surprisingly, JPM also reported a $243MM Credit Adjustments loss "reflecting higher funding spreads on derivatives." We hope to learn more on what this was for during the earnings call.
Furthermore, within corporate and investment banking, JPM provided for $82 million in credit losses "largely driven by reserve builds for select client downgrades."
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In other words….we suck moar then shitigroup even with ZIRP, spotless trading records each and every day, backdoor access to all FRB ABC programs and btw you all should have been dead by now so we did not have a plan to even be in this business let alone have to report on it. WE should have been in antarctica
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https://www.zerohedge.com/news/2019-01-15/jpm-reports-huge-trading-miss-ficc-revenue-plunges-lowest-financial-crisis