Stellar Investment Banking to Aid JPMorgan (JPM) Q2 Earnings

Investment banking (“IB”) fees, one of the main sources of revenues for JPMorgan JPM, is expected to have witnessed a significant rise in second-quarter 2021 on the back of active M&A market as well as solid client activity in equities and debt capital markets. This is likely to provide much needed support to the bank’s results, scheduled to be announced on Jul 13.

IB income basically comprises advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s check how these are likely to have fared in the to-be-reported quarter.

After a remarkable performance over the past few quarters, deal making continued at a rapid pace in second-quarter 2021 as deal volume and total value recorded drastic improvement. This was largely driven by brighter macroeconomic outlook, proposed tax rate hikes by President Joe Biden, substantially higher cash reserves, lower interest rates and global roll-out of COVID-19 vaccines.

Many companies continued with business restructuring efforts with an aim to improve profitability. This is likely to have aided rise in JPMorgan’s advisory fees as well. Hence, the company’s advisory fees are likely to have been favorably impacted. The bank’s leadership position in the space is likely to have offered some leverage as well.

Now coming to the underwriting fees, continuing the momentum that started in the second half of 2020, the IPO market remained active in the to-be-reported quarter. Also, as companies kept building liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. However, after a sizable incremental SPAC issuance activity over the past few quarters, the SPAC listings declined substantially.

Amid near-zero interest rates and the Federal Reserve’s steady bond purchase program (that began in March 2020), bond issuance volumes were decent as companies took this as an opportunity to bolster their balance sheets. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have recorded solid growth in the second quarter.

At an investors conference in mid-June, Jamie Dimon, the CEO of JPMorgan, noted that the quarter “could be one of the best quarters you’ve ever seen” for IB business. He said, “I would just use a number like up 20% from both prior year and prior quarter. It could be 15% to 20%.”

The Zacks Consensus Estimate for IB fees of $3.07 billion indicates 7.9% rise from the prior-year reported number.

Q2 Earnings & Sales Projections

For JPMorgan, the Zacks Consensus Estimate for earnings has been revised nearly 1% upward to $3.05 over the past seven days. The estimated figure indicates a jump of 121% from the year-ago reported number.

The consensus estimate for sales of $29.98 billion, however, suggests a 9.1% year-over-year decline.

JPMorgan Chase & Co. Price and EPS Surprise

JPMorgan Chase & Co. Price and EPS Surprise

JPMorgan Chase & Co. price-eps-surprise | JPMorgan Chase & Co. Quote

Check out the other key factors that are likely to have influenced JPMorgan’s overall performance during the second quarter.

Our Viewpoint

During the second quarter, the operating backdrop was challenging. Weak loan demand and low interest rates, along with dismal trading activities, are likely to have hurt this Zacks Rank #3 (Hold) stock’s top-line growth to some extent. However, robust IB performance might have offered some support.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IB Performance Expectations for Other Players

Among other major global banks, IB revenues constitutes a major portion of total revenues for Bank of America BAC, Goldman Sachs GS and Morgan Stanley MS. Similar to JPMorgan, IB performance is likely to have supported the banks’ revenues and earnings in the second quarter.

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