Why JPMorgan’s Beat Leaves a Lot of Room to Get Negative

Source: Thinkstock

Source: Thinkstock

Market expectations were pretty low for JPMorgan (NYSE:JPM) going into the company’s second-quarter earnings release, and the company was able to easily beat the numbers. But while the stock rose in the days following this earnings beat, and while management seems to be pretty optimistic in the press release and conference call, the fact remains that JPMorgan released weak earnings.

The company’s net revenue fell 5 percent year-over-year, and net income fell by a whopping 21 percent. These are simply lousy numbers, and despite this the company still trades at 15 times earnings, a rather rich price-to-earnings multiple for a company reporting declining earnings.

If we look at the company’s various segments, we see that the decline wasn’t unique to just one or two businesses. It was across the board. The exceptions to this are due primarily to especially favorable market conditions. Specifically, the company saw a 10 percent increase in profits from its asset management segment and an improvement from a loss to a gain in its private equity division. Regarding the former asset management revenues, they are generally based on the value of the company’s assets under management.

With the stock market rising over the past year, it should surprise nobody that the company reported an increase in its profits for this division. Regarding private equity, the fact that interest rates are so low makes it favorable for companies to make private equity deals, and they need a banker such as JPMorgan in order to aid in the process.