JPMorgan Chase's (JPM) volatile trading day is being promoted by a tale of two segment performances: fairly strong consumer banking but tough trends in investment and corporate banking, as well as woes in equity markets.
Shares of the New York-based big bank have yo-yoed in Tuesday morning trading, building from a mild loss in pre-market hours to waving between slightly positive and negative after the open.
"On JPMorgan Chase, it was good ... not great," Action Alerts PLUS portfolio manager Jim Cramer said, summing up the noise that undercut the headline numbers.
With the mixed quarterly report, it's important to highlight where the bank is a leader, namely in consumer, and where the negative noise is emanating, namely corporate and investment banking.
Carrying Consumer Strength
"The consumer has been the star of the whole banking show," Cramer said on Tuesday. That is precisely the case for JPMorgan Chase, which undoubtedly relied on continued strength among U.S. consumers for its record-quarterly profit.
Within the consumer and community banking division, net revenue rose $6.8 billion, up 11% year-over-year, aided by balance growth, and higher deposit margins. Additionally, credit card loans and sales advanced strongly, building on similarly strong merchant processing for the bank.
"We continue to see positive momentum with the U.S. consumers -- healthy confidence levels, solid job creation and rising wages -- which are reflected in our Consumer & Community Banking results," CEO Jamie Dimon stated. "Double-digit growth in credit card sales and merchant processing volumes reflected healthy consumer spending and drove 8% growth in credit card loans, while mortgage and auto originations showed solid improvement, and we continued to attract new deposits, up 3%."
The bank added that its horde of mobile customers continues to grow, indicating the bank's strong engagement with the customers carrying its quarterly profits higher.
"Customers opened over 2 million checking and savings accounts digitally, activated over 60 million Chase offers and our enrollment in credit sharing now exceeds 18 million," newly minted CFO Jennifer Piepszak told analysts.
But the segment had some noise as well, stemming from a moderate decline in home-lending loans, an increase in expenses, and higher auto lease depreciation that was only partially offset by expense efficiencies and lower Federal Deposit Insurance Corporation charges. Still, it can overall be viewed as a key driver of JPMorgan Chase's move back toward a gain on the day.
With Goldman Sachs Group (GS) forecasting the consumer to remain confident through the back half of the year, the segment is likely to remain the star of JPMorgan's show moving forward.
Tough Compares for CIB
The largely mixed quarter overall is in part due to the Federal Reserve's shifting stance on interest rates and tempered performance in the company's corporate and investment banking and corporate banking divisions, or CIB and CB.
Revenue from the segment fell 3% year-over-year, which, despite beating muted expectations, reflected significant declines in fees on investment products and a margin compression on treasury services.
The bank noted that advisory, debt underwriting and equity underwriting fees were down 16%, 13% and 11% respectively as the pipeline pares down.
"The overall (investment banking) pipeline is healthy, though lower compared to the elevated activity from last year and with fewer acquisition financing and refinancing opportunities in debt underwriting," Piepszak acknowledged. "Performance was particularly strong last year, which featured record or near-record revenues in overall IB fees and Equity Markets."
As for total markets and investor services, the segment's fixed income markets revenue also declined from 2018, reflecting "relative weakness in (Europe, the Middle East and Africa) across products, largely offset by increased client activity in North America Rates and agency mortgage trading due to the changing rate environment."
Equity Markets revenue was another tough trend, as revenue of $1.7 billion marked a 12% yearly drop, fomented partly by lower client activity in derivatives.
The more pointed corporate banking segment sagged more substantially, as net income fell 8%, stung by lower net interest income on lower deposit balances.
Non-interest expense climbed alongside the declines to $864 million, up 2%, largely due to technology investments made by the bank.
Overall, these segments are not out of the woods on difficult comparisons and is entering a difficult season for performance as well.
"In terms of the investment banking pipeline, I'll just remind you that the third quarter is typically seasonally lower quarter, and so sequentially, you should think about (investment banking clients) being down a bit," Piepszak cautioned. "That said, the pipeline is healthy, although off a record performance last year, which is a function of a reversion to more normal levels of activity as well as some overhang from macro uncertainty, and in M&A, it still feels very healthy and it's still a space where companies are looking for synergistic opportunities for growth, especially in North America, perhaps Europe a bit more muted."
"[In equity capital markets] I would say deals are done well in the current environment and then (debt capital markets) will be more subdued reflecting a slowdown in acquisition financing activity as well as refinancing opportunities, but albeit with a good backdrop given the rate environment," she added.
Overall, the unusually noisy quarter from its investment banking and corporate divisions for the big bank has not acted as a bulwark to a more rational stock move after the quarterly report.
Shares were promoting an over 1% move to the upside at midday, a big bounce from a nearly 2% decline after the print.
JPM and GS are holdings in Jim Cramer's Action Alerts PLUS member club.