JPM: QUICK TAKE ON 3Q12 RESULTS

Takeaway: $JPM 3Q12 results were solid. A few hiccups (nonaccruals, NIM and loan growth), won't derail growth in tangible and improved returns.

This note was originally published October 12, 2012 at 07:59 in Financials

JPM's 3Q12 Results - Moving in the Right Direction

Overall, we found the JPM 3Q numbers solid. The company earned $1.40 vs. expectations for $1.21. We estimate core earnings were closer to $1.25, which adjusts for all of JPM's itemized one-time items except for their suggested litigation reserve add-back of 11 cents, which we regard as a recurring item until it isn't. 

 

Importantly, this quarter's results weren't driven as significantly by reserve release as we had expected, making it tougher for critics (like ourselves) to decry them as low quality results. Reserve release came in at 17-18 cents vs consensus expectations for 14 cents. As such, the core $1.25 number looks like $1.21 on an apples to apples basis. Given the apprehension that investors had going into the quarter we think an in-line to slightly better than expected result will be enough to keep the stock going higher through the election.

 

The three negatives in the quarter were that non-accruals ticked up 18 bps QoQ, NIM fell 4 bps (vs 1 bp expectations), and loans declined sequentially by $5.5bn (77 bps) vs. expectations for 1.5% growth.

 

The bottom line is that tangible book value per share improved again this quarter, growing by 5% sequentially. Return on capital (tangible), meanwhile, ticked up to 15.7% from 13.9%. Growing tangible and improving returns should support further multiple expansion.

 

We highlight the key takeaways, as well as our macro team's levels on JPM, in the three charts below.

 

JPM: QUICK TAKE ON 3Q12 RESULTS - JPM tang vs stock px

 

JPM: QUICK TAKE ON 3Q12 RESULTS - jpm earnings template

 

JPM: QUICK TAKE ON 3Q12 RESULTS - JPM Macro Chart

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

Robert Belsky

203-562-6500

rbelsky@hedgeye.com


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