almost 4 years ago • 2 mins
Investors were on tenterhooks as JPMorgan became the first investment bank to reveal its first-quarter results – and they seemed to like what they saw 👍
While JPMorgan’s total revenue was slightly lower than investors had predicted, the bank did well where it mattered most. Its “net interest income” – the money it earns from loans, minus the interest it pays out – was higher than expected, even though the Federal Reserve cut US interest rates to a record low in March 🏦 That rate cut – and others around the world – encouraged investors to chop and change their portfolios, which earned JPMorgan’s trading business more in commissions and led to the segment’s highest-ever quarterly revenue. It didn’t come out completely unscathed, of course: with companies dithering on deals and fundraising, the bank made less from advising them than expected.
JPMorgan’s stock rose after its announcement on Tuesday: the boost to its trading business might be temporary, but its dividend is intact – for now. Still, the bank and some of its rivals suspended their lucrative share buybacks last month, and according to Autonomous Research, that suspension meant large American banks went from paying out 135% of their expected 2020 earnings on average to just 45%.
JPMorgan cautioned investors that lower rates will ultimately limit its net interest income, which could lead to even lower dividend payments. There’s another source of pressure too: a recent change in accounting rules means JPMorgan now has to put money aside for potential loan losses up front, rather than during the period the loan’s repaid 💵 That cost JPMorgan a higher-than-expected $8 billion last quarter, and it was the reason its profit fell almost 70% from the same time last year. Still, investors didn’t pay much attention since the bank’s increased costs weren’t its fault.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.