JPMorgan Is on a Hot Streak. Investors Aren't Impressed.

Death, taxes and JPMorgan Chase & Co. demolishing analysts’ earnings estimates.

That was my first reaction when I saw the biggest U.S. bank’s top-line results for the first quarter. Its adjusted revenue of $33.12 billion was up 14% year-over-year and topped even the highest forecast, as did its net income of $14.3 billion, a record high. JPMorgan’s traders managed to outperform expectations, with revenue on the fixed-income side rising 15% from a year earlier while equity sales and trading climbed 47%. The bank even managed to beat lofty estimates for a 152% jump in equity underwriting — it actually surged 219%. All told, JPMorgan posted an impressive 23% return on equity. It’s worth pausing a moment to soak in these astounding figures.

Yet with shares of JPMorgan near all-time highs, it seems investors can’t help but quickly put this remarkable quarter in the rearview mirror and consider whether Chief Executive Officer Jamie Dimon and his colleagues can sustain the momentum. Dimon, who wrote in his annual letter to shareholders last week that he could envision a U.S. economic boom lasting into 2023, reiterated those remarks on Wednesday but also dropped hints that the bank’s core business could face challenges from here.

“Lending originations were very strong,” he said in a press release, “but we expect this to slow with the recent rise in interest rates. Loan demand remained challenged as Card outstandings remain lower despite spend recovering to pre-Covid levels.” (Dimon said on a media call that he perhaps made a mistake using the word “challenged.”) He also reiterated that the $5.2 billion released from credit reserves, which flows straight to the bottom line, shouldn’t be considered core or recurring profits. JPMorgan’s forecast for $55 billion in 2021 net interest income surprisingly fell short of estimates after a slightly disappointing first three months of the year.

Of course, we’ve seen this real-time deliberation about JPMorgan’s outlook play out time and again, only for shares to keep climbing. The bank reported fourth-quarter results on Jan. 15 that showed a big upside surprise in earnings per share — and the stock dropped 1.8%. In October, its earnings also topped estimates, yet shares fell 1.6%. If the initial price move holds, this would be the third consecutive time JPMorgan reports a blockbuster quarter yet fails to rally.

The wild card for JPMorgan is the prospect of a splashy purchase, either in the financial technology space to compete with upstarts and the likes of Walmart Inc., or in asset management to stay ahead of competitors such as Morgan Stanley that have already made big moves. “Acquisitions are in our future, and fintech is an area where some of that cash could be put to work — this could include payments, asset management, data, and relevant products and services,” Dimon wrote in his letter last week. On Tuesday, the bank announced it had hired fintech executives from Goldman Sachs, Google and Wells Fargo to bolster its digital banking efforts. 

Asked about potential acquisitions on a call with analysts, Dimon said: “The door is open to anything that makes sense.” He also made clear that the bank is capable of keeping pace with fintech companies with what it’s working on now. “We’ve got tons of fabulous stuff coming,” he said.

Perhaps the biggest advantage of being the king of Wall Street is that JPMorgan can seemingly adapt to any economic and market conditions and find a way to exceed expectations. In the most recent quarter, its investment bankers brought in a huge amount of money. Last year, its traders seized on financial-market volatility to basically print cash, and it also raked in debt underwriting fees as companies rushed to the bond market. There’s little doubt that JPMorgan will make the most of its opportunities.

But it’s unclear for now exactly what those openings might look like, especially when it comes to core consumer banking. Chief Financial Officer Jennifer Piepszak suggested that JPMorgan is being squeezed in some ways by the unprecedented monetary and fiscal support for the economy. Loan demand is low in part because both small businesses and consumers have been well-supported by the federal government, she said. Meanwhile, organic loan growth probably can’t keep up with the Federal Reserve’s $120 billion in monthly asset purchases, which policy makers aren’t considering tapering anytime soon, creating leverage-ratio strains.

It’s obviously premature to suggest the near-term top is in for JPMorgan and the other large U.S. banks. After all, the Covid-19 pandemic isn’t even over yet, and the U.S. appears on the cusp of some of the strongest economic growth in decades, with Dimon arguing that consumers flush with cash are “ready to go.” But after a 21.2% year-to-date jump in share price, and with some tough year-over-year comparisons ahead, JPMorgan was due for a speed bump. History suggests the bank won’t take long to accelerate back to a cruising speed.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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