JPMorgan Chase’s Return on Capital Shines in Second Quarter

Image Source: Hakan Dahlstrom

By Brian Nelson, CFA

On July 12, JPMorgan Chase (JPM) reported second quarter results that beat expectations on the top line, but came up a bit short on the bottom line. Managed net revenue came in at $51.0 billion, up 20%, while the company’s provision for credit losses swelled to $3.05 billion. Net income was $18.15 billion in the quarter, resulting in earnings per share of $6.12. Net income excluding significant items of $13.1 billion was $4.40 per share. Return on common equity was 23% in the quarter, while return on common equity was 28%.

CEO Jamie Dimon’s commentary on the quarter is found below:

The Firm performed well in the second quarter, generating net income of $13.1 billion and a ROTCE of 20% after excluding a net gain on our Visa shares, a contribution to the Firm’s Foundation and discretionary securities losses.

This quarter, in the CIB, investment banking fees rose 50%, albeit against a low base, and our market share improved across products to 9.5% YTD. Markets revenue also increased 10%. In CCB, we opened over 450 thousand net new checking accounts, our 50th consecutive quarter of net new account growth. Client investment assets were up 14% to $1.0 trillion, and we also had a record number of first-time investors. Additionally, Card loans were up 12% on continued robust customer acquisition of 2.4 million. Finally, in AWM, asset management fees were up 13%, and we saw $79 billion of client asset net inflows. Pretax margin remained strong at 32%.

While market valuations and credit spreads seem to reflect a rather benign economic outlook, we continue to be vigilant about potential tail risks. These tail risks are the same ones that we have mentioned before. The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown. Next, there has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world. Therefore, inflation and interest rates may stay higher than the market expects. And finally, we still do not know the full effects of quantitative tightening on this scale.

We now have a CET1 capital ratio of 15.3%, providing us with excess capital even after the uncertainty created by Basel III endgame. Last month, we announced that the Board intends to increase our common dividend for the second time this year, resulting in a 19% cumulative increase compared with the fourth quarter of 2023. This increase is supported by our strong financial performance and represents a sustainable level of dividends. Our priorities remain unchanged. We continue to invest heavily into our businesses for long-term growth and profitability. We maintain a fortress balance sheet and prepare the Firm for a wide range of potential environments.

Finally, we take pride in driving economic growth by extending credit and raising capital totaling more than $1.4 trillion YTD for large and small businesses, governments and U.S. consumers.

JPMorgan is an important bellwether for the global economy, and its second quarter results spoke of continued strength and high returns on capital. We include Financial Select SPDR (XLF) in the Best Ideas Newsletter portfolio to capture diversification benefits from the largest financial institutions. Shares of JPM yield 2.2% at the time of this writing.

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