America's largest bank JPMorgan Chase $JPM beat both earnings (EPS of $1.38 vs $1.04) and Revenue ($33 billion vs $30.3 billion) estimates for the second quarter but CEO Jamie Dimon warns that there are still a lot of volatilities ahead and that the bank with their financial fortress balance sheet is prepared for any eventualities.
JPMorgan Chase reported $10.5 billion in credit losses, up 64% from last quarter and up over 800% from the same quarter last year. This is the second in a row that the company is recording massive credit losses as delinquency rates and default rates rises.
Latest Fed data (1Q 2020) shows 90-days delinquency rates on credit card, auto loans and mortgages to be 9.09%, 5.05% and 1.06% respectively.
30-days Delinquency rates for JPM are as follows: 2.1% for consumer card, 4.0% for business card, 7.4% for auto loans and 6.5% for home loans. We still have to wait for the latest Fed data to know how exactly JPM is doing but for the time being, we can already see that JPM credit card business is still strong as the delinquency rate (on a shorter time frame)is lower than the US average. The credit card business has been central to the growth of JPMorgan in this low interest rate environment as JPM is now the largest credit card issuer in the US.
Sales from the credit card business is still down YTD but it is recovering. As for mortgage and auto loan applications, they are already on the rise. These data tell us a lot about the state of the economy as consumers are saving more and investing rather than spending.
Talking about saving and investing, the deposits of JPM in the consumer and community banking are up 20% YoY while loans are down 7% YoY. For a bank, deposits are liabilities while loans are assets, therefore, things are not looking that good right now with this segment losing money in the second quarter.
As for investment banking revenues, they are up 91% YoY as the markets have been unusually volatile in the second quarter especially with a 65% increase in the Fed balance sheet this year. Fixed income revenues are up 99% YoY while Equity revenues are up 38% YoY. In the Asset and Wealth Management segment, which includes the custodian banking business, Net income is down 8% YoY with Revenues up 1% YoY.
We can clearly see that the businesses targeting richer customers (usually under the JPMorgan brand) is doing much better than the businesses targeting the average person (under the Chase brand). This is another indication that the actions of the Fed and Treasury are not doing enough to help spending and thus the economy but instead is inflating asset prices.
Overall, Average loans are up 4% with average deposits up 25%. This is not as bad as the consumer banking business and it was enough for the bank to increase its balance sheet in the second quarter with an increase of 4% in book value per share. Returns on Common Equity was 7% down from 16% for the same quarter last year. The bank has decided to keep paying dividends without any share repurchases. I think that this is a good decision as Wells Fargo $WFC is cutting dividends.
According to JPM, even if they kept paying dividends and repurchasing shares, their CET1 (currently at 12.4% ) would still be better than in 2017 (12.1%).
The bank is not buying shares but as a long-term investor, I think it is still a good stock to buy. JPM earnings are always very interesting as they give us a glimpse of the economy in general. But this time, looking at the consumer banking business and the investment banking business, it seems that we are looking at the economy of two different countries. I will say that I agree with Jamie Dimon, that things are uncertain ahead and that it is better to be safe.