Has the Financial Crisis Finally Caught Up With JPMorgan?

Source: Getty Images

Source: Getty Images

Shares of JPMorgan Chase (NYSE:JPM) closed the day down 3.66 percent at $55.30 on Friday after the bank, America’s largest by assets, reported first-quarter results that came in below analyst expectations. JPMorgan reported net income of $5.3 billion, or $1.28 per share, a 19.5 percent decline on the year and 12 cents below the mean analyst estimate. Total net revenues fell 8.5 percent on the year to $22.99 billion, below the mean analyst estimate of $24.53 billion.

JPMorgan Chair and Chief Executive Officer Jamie Dimon defended the results. “JPMorgan Chase had a good start to the year, given there were industry-wide headwinds in Markets and Mortgage,” Dimon said in the earnings release. “Consumer & Community Banking deposit growth and card sales volume both remain above the industry average, and we have made significant progress in Business Banking originations — up 22 percent. The Corporate & Investment Bank was No. 1 in Global IB fees, with No. 1 positions in global debt and equity, global syndicated loans and global long-term debt. Gross investment banking revenue with Commercial Banking clients was up 31 percent. Asset Management had its twentieth consecutive quarter of positive net long-term client flows and had record loan balances, up 20 percent.”

All this is true, but it wasn’t enough to stop the bad news bears brigade from marching on Friday following the release. In an interview with Bloomberg, Josh Rosner, managing director at Graham Fisher, argued that “there’s not a lot of growth opportunity” for banks like JPMorgan and Wells Fargo (NYC:WFC), which also reported earnings today. Wells Fargo beat earnings estimates and met revenue estimates, but Rosner said that “both of them had kind of weak top line.”

To recap, Wells Fargo posted net income of $5.9 billion, or $1.05 per share, up 14 percent on the year and above the mean analyst estimate of 92 cents per share. Revenue fell about 3 percent to $20.3 billion, consistent with the mean analyst estimate.

JPMorgan’s weakness in the first-quarter was particularly stark in light of strong performance at Wells Fargo. Where JPMorgan reported weakness across many units, Wells Fargo reported strength in core units like loans, deposits, and investments. But both faced market headwinds; where JPMorgan suffered from falling bond revenue (down 21 percent on the year) and plunging mortgage-lending revenue (down 84 percent on the year), Wells Fargo suffered from lower mortgage banking revenue (down 46 percent on the year) and non-interest income is down (about 7 percent.)

The difference, argues Rosner, is that JPMorgan is more sensitive to the regulatory firestorm that has narrowed the scope of operations for big banks. JPMorgan in particular has been a favorite target of post-crisis ire for its sheer size and reputation. If anything, Main Street grew to vilify Dimon more as a fat cat bankster in the wake of the financial crisis when it became clear that he had steered the firm through the storm with minor damage.

It really wasn’t until the London Whale snafu that JPMorgan appeared to really be hurting. The $6.2 billion loss combined with the regulatory siege that the Justice Department, the Securities and Exchange Commission, and the New York Attorney General (not to mention the specter of Bernie Madoff) had the bank under became too much, and the firm ended up reporting its first quarterly loss in nearly a decade in 2013.

Now, it looks like market headwinds are weighing down results, and it’s unclear when JPMorgan will get its stride back.

But the bank’s executives — and to a large degree, the bank’s investors — appear to be unfazed by the headwinds. Speaking with Bloomberg Television last Friday, JPMorgan CFO Marianne Lake defended the company, saying that “we have a fortress balance sheet” and that, “We continue to invest in our businesses. We have everything. We have the best hand. And we will win.” To that point, JPMorgan reported Basel 1 Tier 1 common capital of $149 billion, a ratio of 10.7 percent, and estimated Basel III Tier 1 common capital of $151 billion, a ratio of 9.5 percent.

When asked what she meant by “we will win,” Lake explained. “So we have proven that we’re adaptable,” she said. “We’ve proven that we’re able to do that and still deliver very, very strong returns, industry-leading returns.” For the fourth-quarter, JPMorgan reported that return on tangible common equity, a measure of the bank’s earnings relative to stockholder’s common equity, fell 1 percentage point to 14 percent.