Investors cheered after Dow component and financial services giant JPMorgan Chase & Co. (JPM - Free JPMorgan Stock Report) reported much better-than-anticipated June-quarter earnings. The company's Chairman, James Dimon, also addressed concerns regarding company management while he undergoes seven to eight weeks of treatment for cancer, which was caught early and is curable. The company indicated it has succession plans in place, a strong management team, and procedures should Mr. Dimon be unavailable during the treatment period. The stock advanced more than 4% in Tuesday morning trading.
The global bank earned $1.46 a share in the June interim, below the $1.60 logged in the comparable quarter of 2013, but above March-period results of $1.28 and our June-interim estimate of $1.25. June-period earnings included $0.13 a share of legal costs that were partly offset by releases of consumer loan loss reserves (a positive benefit of about $0.07 a share). Legal expenses were immaterial in the March quarter, so the sequential-period earnings pickup was noteworthy.
Although revenues declined 3% year to year, reflecting the challenging trading and mortgage markets, they rose 6% on a consecutive-quarter basis, supported by broad based improvement in fee-based revenues. Credit card sales volumes and auto loan originations rose, as did investment banking income. Net interest income also inched slightly higher, aided by an 8% increase in the core loan portfolio and a stable net interest margin. Meanwhile, expenses declined 3% year to year, but the loan loss provision rose sharply because the year-earlier figure was unusually low.
By business group, all of JPMorgan's divisions except corporate & investment banking reported better earnings compared with the March period. On a year-to-year basis, commercial banking and asset management profits rose.
Looking ahead, the trading and mortgage businesses probably will continue to face headwinds (with fixed-income trading activity slow in July); legal expenses are likely to remain lumpy; and we don't look for significant further releases of consumer loan loss reserves. But, JPMorgan's commercial loan pipeline has strengthened, which augurs well for loan growth in the second half of 2014. Interest rates probably will remain historically low over the remainder of the year, but a modest expected increase might support better net interest income in 2015. Management estimates a 100 basis point rise in rates would add about $2.5 billion to net interest income. Meanwhile, further economic improvement and ongoing investments in its diversified businesses should support moderate growth in fee-based revenues. The company expects to exceed its personnel reduction targets in the consumer business and hold full-year consolidated expenses below $58 million. Too, JPMorgan has $5 billion of stock-repurchase authorization left under its current plan, which ought to enhance share net. With the company's prospects looking up, we are raising our earnings-per-share estimate for 2014 from $5.30 to $5.75, and our 2015 call from $5.90 to $6.20.
JPMorgan stock still looks like a good selection for total return potential to 2017-2019, despite the issue's uptick on the favorable earnings report. The company has a diversified mix of businesses that should benefit as economic activity rebounds. We also expect the dividend, which was recently increased 5%, to a quarterly rate of $0.40 a share, to track earnings growth.
About The Company:JPMorgan Chase & Co. is a global financial services company offering a variety of services with operations in over 60 nations. Operational divisions include investment banking, treasury & securities services, asset management, commercial banking, retail financial services, card services, and private equity investment. The company had previously merged with Washington Mutual in September, 2008, Bank One in July, 2004, and Chase Manhattan in the final month of 2000.