Updated with market close information.
The Dow Jones Industrial Average rose over 200 points, after JPMorgan reported a second-quarter profit of $5 billion, or $1.21 a share, soundly beating the consensus estimate of a 72-cent profit, among analysts polled by Thomson Reuters.
The KBW Bank Index (I:BKX) rose over 3% to close at 45.91, with all 24 index showing gains of at least 2%.JPMorgan CEO James Dimon had in May estimated that the second-quarter hedge trading loss by its Chief investment Office (CIO) estimated at would be "slightly more than $2 billion." The trading losses for the second quarter in fact totaled $4.4 billion, and the company also said it would restate its first-quarter earnings by $459 million, but investors cheered several positive developments:
- Mortgage revenue increased to $2.3 billion during the second quarter, from $2.0 billion during the first quarter, and $1.1 billion in the second quarter of 2011.
- Total noninterest expense declined to $15.0 billion in the second quarter, from $18.3 billion the previous quarter, and $16.8 billion a year earlier, mainly reflecting a decline in litigation expenses, but also a reduction in compensation expenses to $7.4 billion, from $8.6 billion in the first quarter (the annual seasonal spike for bonuses), and $7.6 billion in the second quarter of 2011.
- Period-end commercial banking loans grew to $120.5 billion as of June 30, from $115.8 billion the previous quarter, and $102.7 billion a year earlier.
The shares trade for seven times the consensus 2013 EPS estimate of $5.28. The consensus 2012 EPS estimate is $4.19. Stifel Nicolaus analyst Christopher Mutascio rates JPMorgan a "Hold," and said on Friday that after backing out the one-time items during a quarter with "significant noise," he "could arrive at a core quarterly EPS run-rate in the $1.35 range." The analyst said that "areas in which the company clearly beat our expectations were: 1) mortgage banking income came in at $2.27 billion versus our estimate of just $1.61 billion, and 2) operating expense were $14.97 billion versus our estimate of $15.55 billion," combining "for a $1 billion beat, or $0.17 per share, relative to our expectations." Mutascio's areas of concern include "1) the company's net interest income came in at $11.15 billion, which is down from the 1Q12 level of $11.67 billion and lower than our $11.84 billion estimate - with the net interest margin falling to 2.47% from 2.61% in 1Q12, and 2) the company's estimated Basel III tier 1 common capital ratio was 7.9%, down from the originally reported 1Q12 level of 8.4% and the restated 1Q12 level of 8.2%." Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.