3 things to watch out for as JPMorgan Chase reports profits

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JPMorgan Chase (NYSE: JPM) will kick off the results season this week. The stock has performed well after surviving a 2020-dominated pandemic. Its financial performance has shown just how strong the country’s largest bank has become and how its fortress balance sheet can survive a severe downturn.

This year, JPMorgan stock has reached new highs and is currently trading at a premium valuation. But there are still plenty of uncertainties investors will seek answers to when the banking giant reports on Wednesday, October 13.

Here are three things to pay attention to in this income report.

Image source: JPMorgan Chase.

1. Forecast net interest income

One of the main contributors to bank revenues, net interest income (NII) is basically the money that banks earn on their loan and securities portfolios. At the start of 2021, JPMorgan initially forecast $ 55 billion in net interest income for the year, but when calling the bank’s second quarter results, management reduced that forecast to $ 52.5 billion. of dollars. The NII is a by-product of the growth in loans, interest rates, securities purchases and prepayment rates for clients. Loan growth has been very difficult to achieve over the past year, while interest rates have been very low and loan prepayment rates high (reducing the volume of loans and therefore interest income), which put pressure on NII. CEO Jamie Dimon has also not been interested in buying securities to increase the NII in the short term because long term interest rates are so low and he does not want to lock them in until the Federal Reserve does not increase its federal funds rate.

At a conference in September, Marianne Lake, co-CEO of JPMorgan’s consumer and community banking division, said prepayment rates, while still high, are no longer rising as they were and that management expects the NII forecast of $ 52.5 billion to hold. Some reports suggest that loan growth may have picked up slightly in the quarter, but I’m guessing Dimon didn’t invest too much in stocks as long-term yields remained low for most of the period. third trimester. Nonetheless, it will be interesting to know if the bank has an NII forecast for 2022.

2. Investment banking and sales and trading

Investors will also monitor the performance of JPMorgan’s merchant and investment banking division, which also includes sales and trading activities. The division thrived in 2020 and really supported the bank as it faced declining lending growth and set aside billions of dollars to prepare for potential loan losses that ultimately did not materialize. .

Lake provided some guidance, saying that in the division’s markets business, the bank expects revenue to decline by around 10% from second quarter and year-over-year, which doesn’t This is not a huge surprise because, at some point, the activity must have returned to normal. But despite the decline, Lake said the markets were actually trending better than management thought a few months ago. This is mainly due to the strength of the bank’s activities in the equity markets, which include raising capital for businesses, blue chip services and equity derivatives. Performance should be less impressive in the bank’s interest rate, currency and commodities business.

The news is more positive on the investment banking front with continued buoyant M&A activity. Investment banking fees are expected to increase year over year, but will not be as high as in the second quarter of the year. Still, Lake said the pipelines have remained strong. Investors and analysts will continue to research what a normalized execution rate looks like in the corporate and investment banking division going forward.

3. Acquisitions, fintech and growth

JPMorgan has embarked on a shopping spree this year, making a number of acquisitions in various segments of the bank. Dimon has always talked about the competitiveness of the fintech space and has even gone so far as to previously call the up-and-coming payments company Plaid, citing their inappropriate use of data.

In the first half of the year, JPMorgan strengthened its asset and wealth management capabilities by acquiring several fintech companies such as 55ip and OpenInvest, which help financial advisors build niche investing capabilities. He also bought the popular UK-based robotics consultancy Nutmeg Savings and Investment Limited. This decision follows the launch of its digital bank in the United Kingdom. Next, JPMorgan took a 40% stake in C6, a digital bank in Brazil, which is becoming a very attractive global banking market. In the second half of the year, JPMorgan continued to buy, announcing the acquisitions of university financial planning firm Frank and food recommendation firm The Infatuation, as well as a controlling stake in Volkswagenpayment activity of. The bank also increased its lead in the deposit market in the United States.

JPMorgan Chase is growing in so many different ways, whether geographically, organically or by bringing together different divisions of the bank like wealth and asset management. I will be interested to know more about how the bank plans to link these acquisitions and integrate them into the bank. Since JPMorgan is already the largest bank in the United States and is trading at a higher valuation, it is important to understand its growth strategy to see how it can continue to improve shareholder value.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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