[Overseas Stocks Spotlight] "JP Morgan Recovers Normal Earnings Scale... Future Stock Price Depends on Interest Rate Direction"

[Asia Economy Reporter Eunmo Koo] IBK Investment & Securities evaluated JPMorgan (JPMorgan·JPM.US) as recovering its recurring profit scale and stated that the future stock price will depend significantly on the direction of interest rates.

Kim Eun-gap, a researcher at IBK Investment & Securities, reported on the 5th that the net operating revenue for the third quarter of this year was $29.12 billion, a 0.7% decrease compared to the same period last year, while earnings per share (EPS) were $2.92, exceeding market consensus by 29%. Net profit was $9.4 billion, up 4.0% year-on-year and showing a strong performance with a 101.5% increase compared to the previous quarter. In the first and second quarters, loan loss provisions of $8.28 billion and $10.5 billion were set aside respectively, but in the third quarter, this was significantly reduced to $610 million.

By business division, net profit in the Corporate & Investment Banking (CIB) sector increased by 52.0% year-on-year to $4.3 billion, Commercial Banking (CB) rose 15.4% to $1.09 billion, and Asset & Wealth Management (AWM) grew 31.3% to $880 million, offsetting the weakness in Consumer & Community Banking (CCB) and other sectors. Consumer & Community Banking recorded $3.87 billion, down 8.8%.

The future stock price is evaluated as being heavily influenced by the direction of interest rates. The net interest margin (NIM) for the third quarter was 1.82%, down 17 basis points (1bp=0.01%) from the previous quarter and 59 basis points lower than the same period last year. Interest income was $13 billion, down 8.9% year-on-year, while non-interest income increased by 7.1% to $16.1 billion. Within the non-interest income segment, investment banking fees and trading gains showed strong results. Investment banking fees were $2.1 billion, up 11% year-on-year, and trading gains were $4.62 billion, up 30.8%.

Loan loss expenses in the third quarter were $600 million, a decrease of $900 million compared to the same period last year. Researcher Kim explained, “The third-quarter results included $524 million in legal expenses, which had an EPS reduction effect of $0.17.” JPMorgan provided 2020 guidance with annual net interest income of $55 billion and recurring expenses excluding legal costs of $66 billion. Kim noted, “Although JPMorgan mentioned the possibility of increased loan loss expenses, the situation has improved compared to its own forecast three months ago,” and forecasted, “After the presidential election, the influence of interest rate direction on stock prices will expand.”