>>> JPMorgan Chase beats by $0.02, beats on revs --> +1.76% pre open

JPMorgan Chase beats by $0.02, beats on revs (57.34)
  • Reports Q4 (Dec) earnings of $1.32 per share, $0.02 better than the Capital IQ Consensus of $1.30; reported revenues rose 0.6% year/year to $22.89 bln vs the $22.34 bln Capital IQ Consensus; Managed revenue was $23.74 bln.
  • Fourth-quarter results included $99 million of after-tax impact from legal-related matters ($0.03 per share decrease in earnings) n Includes $417 million of after-tax Firmwide legal expense and $318 million of after-tax benefit related to a legal settlement.
  • Credit Costs
    • The provision for credit losses was $1.3 billion, up 49%, due to reserve increases in the current quarter versus reserve releases in the prior year quarter, partially offset by lower net charge-offs. The reserve increases in the current quarter reflected an increase in wholesale reserves of $185 million, driven by downgrades, including $124 million in the Oil & Gas portfolio and $35 million in Metals/Mining.
  • Key Metrics
    • Return on Tangible Common Equity 11% compared to 15% in Q3.
    • Return on Assets 0.90% compared to 1.11% in Q3.
    • Average core loans up 16% y/y (+5% q/q)
    • Overhead Ratio 62% compared to 67% in Q3.
    • Interest Rate Spread 2.12% compared to 2.06% in Q3.
    • Net Yield on Interest Earning Assets 2.23% compared to 2.16% in Q3.
    • Tangible book value per share of $48.13, up 8% n Basel III common equity
    • Tier 1 capital of $173 billion; ratio of 11.6%
    • Firm SLR of 6.5% and Bank SLR of 6.6%
  • CIB Unit
    • Net income was $1.7 billion, an increase of 80%, driven by lower legal expense. Net revenue was $7.1 billion, a decrease of 4%.
    • Banking revenue was $2.8 billion, down 6%. Investment Banking revenue was $1.5 billion, down 11%, on lower debt underwriting fees, partially offset by higher advisory fees.
    • Markets & Investor Services revenue was $4.3 billion, down 3%. Excluding the revenue decline related to business simplification, both total Markets and Fixed Income Markets revenue would have been down 1%, while Equity Markets revenue would have been flat. Fixed Income Markets revenue reflected continued weakness in Credit, lower revenue in Currencies & Emerging Markets and lower Commodities revenue, largely offset by strength in the Rates business. The decline also reflected higher interest costs on higher long-term debt.
    • Noninterest expense was $4.4 billion, down 20%, primarily driven by lower legal and compensation expense.
    • The provision for credit losses was $81 million, compared to a benefit of $59 million in the prior year quarter, primarily reflecting $76 million in higher reserves driven by $63 million in the Oil & Gas portfolio.
--> Follow Up
  • Firmwide Legal Expenses $644 mln (Approx $0.11 drag on EPS); Q3 expense was $1.34 or $0.26 per share.
  • Net Interest Income was $11.5 bln compared to $11.2 bln in Q3.
  • Expenses were $14.3 bln compared to $15.4 bln in Q3.
  • Credit Costs $1.3 bln compared to $600 mln in Q3.
  • NIM up 7 bps q/q to 2.23%.
  • Firmwide reserves at $14.3 bln coimpared toi $13.5 bln in Q3.
  • Deposit margin of 1.83%, down 28 bps YoY and 3 bps QoQ.
  • Mortgage originations of $22.5B, down 2% YoY and 25% QoQ.
  • Outlook
    • Expected 1Q16 NII and NIM to be flat to slightly up sequentially.
    • C&CB expected Mortgage Banking NIR to be down by approx $700 mln in 2016;
    • Expect Mortgage Banking NCOs to be approx $60 mln per quarter in 2016;
    • Expect 1Q16 Card Services expense to be relatively flat sequentially.

  • JPMorgan Chase on Energy Reserve Builds
    • The provision for credit losses was $1.3 billion, up 49%, due to reserve increases in the current quarter versus reserve releases in the prior year quarter, partially offset by lower net charge-offs. The reserve increases in the current quarter reflected an increase in wholesale reserves of $185 million, driven by downgrades, including $124 million in the Oil & Gas portfolio and $35 million in Metals/Mining.
    Prior Commentary
    • Energy Exposure- Approx $43 bln;
    • Fox Business News Maria Bartiromo tweeted yesterday that JPM's Jamie Dimon said that if oil stays were it is then the bank will need to increase reserves by $500 mln.
    • For a comparison Citigroup (C) has approx $60 bln in exposure to energy loans and has said it would need to increase reserves by $400 mln.
    Q3 Impact
    • Net reserve release of $281 million pre-tax, which reflected a little less than $600 million of consumer reserve releases as favorable credit trends continue; offsetby a build of a little over $300 million in wholesale, approximately $160 million of which is additional reserves associated with the oil and gas sector, given expectations that energy prices will remain lower for longer.
    • "So if energy prices stay around these levels and recover slowly, we're expecting net not to have a material incremental reserve in the next quarter".