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JPM Beats Thanks To $3 Billion Reserve Release But FICC Trading Revenue Misses

Courtesy of ZeroHedge View original post here.

And so Q2 earnings season has officially kicked off with JPM report second quarter results which beat on the top and bottom line, however much of the beat is being attributed to a generous $3 billion "one-time" reserve release, while the bank's all important FICC trading group reported a modest miss.

Here are the Q1 details:

  • Adjusted revenue $31.40 billion, which came not only higher than the consensus estimate of $30.06 billion but above the highest forecast in of $31.35 billion.

     

    • FICC sales & trading revenue $4.10 billion, -44% y/y, estimate $4.12 billion
    • Equities sales & trading revenue $2.69 billion, +13% y/y, estimate $2.21 billion
    • Investment banking revenue $3.42 billion, estimate $2.94 billion
  • Net Income of $11.5BN which translates to $3.78/share, above the consensus estimate of $3.17

Notably, the bottom line number included a $3 billion reserve release, which net of $0.7BN in charge offs meant a $2.3 billion drop in credit costs.

A detailed breakdown of the bank's reserve releases shows that the majority of the favorable treatment ($1.8BN) came from the consumer credit cards with the Consumer division contributing $2.6 billion of the total $3 billion in releases, and another $400mm coming from wholesale.

However, when turning to the bank's all important Corporate and Investment Bank division, it is here that JPM disappointed, because as noted above, FICC revenue of $4.10BN came in just below the $4.12BN expected. The number was down 44% YoY, and was "driven by lower revenue across products as compared with a favorable performance in the prior year." On the other hand, Equity sales and trading came in at $2.69BN, which was 13% higher than a year ago and also handily beat estimates of $2.21BN, and was "driven by

record balances in prime brokerage, as well as strong performance in Cash Equities and derivatives."

As a result, total Markets Revenue was $13.2BN, down 19% while Net Income also dropped, but a more modest 9% Y/Y, to $5.0BN. Where did the operating leverage come from? Expenses of $6.5BN also declined YoY, shrinking by 4%, "driven by lower revenue-related expense, primarily performance-related compensation, partially offset by higher volume-related expense."

In kneejerk response, JPMorgan's stock fell as much as 1.8% in premarket trading Tuesday, dragging U.S. banks stocks lower, as traders focused on the $3BN reserve release driving much of the bottom line beat, while souring on JPM's FICC miss. Other major bank stocks moving lower during premarket: Bank of America -0.9%, Citigroup -0.4%, Goldman Sachs -0.4% and Wells Fargo -0.6%; Morgan Stanley shares were unchanged. Goldman Sachs is set to report its results for the second quarter at 7:30 a.m. in New York

The full Q2 earnings presentation is below (pdf link)

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