NEW YORK, April 12 (Xinhua) -- U.S. top-ranking bank JPMorgan Chase & Co. reported robust first-quarter earnings on Friday, surpassing expectations.
However, a decline in one of its crucial profit metrics compared to the previous quarter led to a drop of over 6 percent in the company's shares, which has raised questions about the banking sector's impacts on overall performance of the broader S&P 500 Index.
The financials sector will draw attention from the market over the next two weeks, as 50 percent of the S&P 500 companies slated to release their first-quarter earnings during this time belong to this sector.
High interest rates have allowed banks to increase their net interest income (NII), which represents the difference between the interest earned on loans and the interest paid on deposits. However, banks are now considering the potential for interest rate cuts by the U.S. Federal Reserve later this year.
JPMorgan, the largest U.S. bank in terms of assets, has also expanded its loan portfolio by acquiring failed First Republic Bank in May last year, contributing to its interest income growth.
JPMorgan reported earnings of 4.44 U.S. dollars per share for the first quarter, marking an 8.3 percent increase from the same period last year and surpassing analysts' expectations of 4.15 dollars per share. The bank's revenue also saw growth, rising 6.6 percent to 41.93 billion dollars, slightly exceeding the estimated 41.84 billion dollars.
Despite these positive figures, JPMorgan noted a 4 percent sequential decrease in net interest income, attributed to margin compression and lower deposit balances.
"Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces," said JP Morgan's CEO Jamie Dimon, citing geopolitical tensions, persistent inflationary pressures and effects of quantitative tightening.
"We do not know how these factors will play out, but we must prepare the firm for a wide range of potential environments to ensure that we can consistently be there for clients," said Dimon.
"The absence of an increase in the NII guide could be viewed as disappointing by the market," HSBC analyst Saul Martinez wrote. Despite the fall in shares, analysts believe that this was yet another "solid" quarter from JPMorgan.
JPMorgan Chase is on track for its largest percentage decrease since March 15, 2023, when it fell 4.72 percent, according to Dow Jones Market Data. JPMorgan stock was the worst performer among Dow Jones blue chips on the stock market on Friday.
Sean Ryan, vice president and associate director for the banking and specialty finance sector at FactSet, anticipates that this bank earnings season is likely to be characterized by mixed spread revenue trends, relative strength in fee income (with some corresponding pressure on expenses), and further reserve building amid continued mean reversion in credit quality.
Key areas to watch include signs of net interest margins bottoming, any acceleration of credit deterioration, and for universal banks, management commentary around the durability of the investment banking improvement year-to-date, according to Ryan.
