An In-Depth Look at JP Morgan’s 2Q Earnings

JP Morgan (NYSE:JPM) stock is up 2.88% so far today, leading the financial sector (NYSE:XLF) thanks to second quarter earnings that topped analyst expectations. The company reported Q2 per share earnings of $1.27 v. consensus targets of $1.20 EPS. Revenues totaled $27.7 billion, 7% growth YoY, also widely toppling consensus projections of $25.13 billion.

CEO Jamie Dimon noted, “Our second-quarter earnings reflected solid performance across most of our businesses. The Investment Bank delivered strong earnings across most products and maintained its #1 ranking in Global Investment Banking Fees. Commercial Banking reported record revenue and continued loan growth for the quarter. Retail Financial Services demonstrated good underlying performance in Retail Banking but continued to experience high losses for mortgage-related issues…Looking forward, we continue to see substantial opportunities for the company. We are building our international presence, with more bankers, branches and products to serve our multinational clients where they want to be served.”

The WSJ nods to Deutsche Bank (NYSE:DB) analyst Matt O’Connor, who concocts a list of the good news and bad news from the banking leader’s quarterly results.

“The positives: 1) JPM continues to deliver solid/strong results in what seems like a mixed trading environment (at best). 2) Period end loans rose slightly (up 2% annualized) vs. 3/31 driven by growth in all wholesale segments (TSS and AM drove 60% of growth). 3) Mgmt intends to maintain current Basel 3 Tier 1 common of 7.6% as they do not intend to reach targeted levels ahead of schedule. This implies buybacks (which totaled $3.5b this qtr) could be more than expected.

The negatives: 1) Net interest margin was down a larger than expected 17bps given declining loan yields (we est a 10bp hit), higher deposit rates (-4bps) and higher short term borrowing costs (-2bps). Average loan yields declined 26bps, driven by card (incl a nearly 50bp decline in the core Chase book). 2) Mortgage and litigation costs (incl foreclosure, servicing, putbacks) totaled another $2.5b. This bring the 6 quarter total to about $20b. 3) Expense mgmt was good in ibank and commercial segments, but heavy investment spend is still evident in retail, card and asset mgmt.” also offers some perspective on how JPM shapes up next to banking rivals, “If you compare the operational performance of JP Morgan with its closest peers, Citigroup (NYSE:C) and Bank Of America (NYSE:BAC), it’s clear that JPMorgan performed admirably through the wicked economic downturn, while BAC and Citi stumbled…JPMorgan was one of the strongest major banks going through recession, [though] this doesn’t say anything about other major banks’ prospects or the economy going forward.”

MarketWatch argues that the jump in share price signals a highly positive reaction to the recent earnings, as in the past JPM has regularly topped expectations but seen little gain in ticker price. “[Morgan] has beaten forecasts each of the past 10 quarters according to FactSet, and only once has the stock benefited. That was in July 2009, when the bank reported earnings of 28 cents a share to crush a consensus target of 13 cents.” One view is that the stock’s gains this time around may be more driven by the contrast between JPMs (NYSE:JPM) results and expectations that projected a major downturn in banks’ performance this quarter.