Should Investors 'Chase' J.P. Morgan after Solid 4Q15 Earnings?
Adjusted earnings per share of $1.40 beat estimates
On Thursday, January 14, J.P. Morgan reported its 4Q15 results. Its fourth quarter earnings surpassed investors’ expectations as loan growth and credit quality showed improvement. The company reported that lower oil prices and market volatility pressured its earnings during the quarter.
The company reported adjusted earnings per share of $1.40, surpassing Bloomberg consensus estimates of $1.27 by roughly 10%. These earnings exclude tax benefits, legal expenses, and reserve releases. Including these, EPS for the quarter was $1.32. During the quarter, JPM reported a one-time tax impact from legal matters of $99 million, which led to a $0.03 decrease in EPS. It also reported after-tax legal expenses of $417 million and a $318 million after-tax benefit related to a legal settlement. For fiscal 2015, J.P. Morgan’s EPS was $6.0, up 13% compared to 2014.
Revenues and net income
The bank reported quarterly net income of $5.4 billion, up 10% year-over-year, but down 20% on a quarterly basis.
Net revenues also beat consensus estimates of $23.2 billion and came in at $23.7 billion. This is 1% higher compared to the corresponding period last year and compared to the last quarter. The company attributed the strong performance to the consumer and community banking business.
Non-interest expense was $14.3 billion, which fell by 7% YoY mainly due to lower corporate and investment banking expenses related to legal expenses and compensation. The bank increased provisioning for credit losses by 49% to $1.3 billion, reflecting reserve increases in the quarter that were partially offset by lower net charge-offs.
J.P. Morgan is the first major bank to report its fourth quarter earnings since the Federal Reserve hiked interest rates in December. It has a weight of 8.1% in the Financial Select Sector SPDR ETF (XLF). Peers expected to report this week include Wells Fargo (WFC) and Citigroup (C). Bank of America (BAC) and Goldman Sachs (GS) are scheduled to report their earnings next week.
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