3 Key Takeaways from JPMorgan Chase's Earnings

Source: JPMorgan Chase

Shares of JPMorgan Chase (JPM 0.49%) were up over 4% early Tuesday following the second-quarter report. The quarter earned extra investor attention thanks to a recent health disclosure from long-term CEO Jamie Dimon and the nearly concurrent reports from competitors Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C). 

JPMorgan Chase beat analyst expectations with a reported $24.5 billion in revenue and $1.46 EPS though earnings were down 8% year-over-year. Analyst consensus had put revenue at $23.7 billion with $1.30 EPS. The earnings beat didn't stem from a flawless quarter.

What were the three key investor takeaways from JPMorgan's second quarter? 

1. Dimon's health update
Jamie Dimon earlier this month announced his diagnosis with throat cancer. Investors became concerned due to Dimon's prominence at JPMorgan Chase and his lack of clear successor if the worst case scenario played out. Dimon used the second-quarter report to provide a health update. 

During the earnings call, Dimon said, "I know some of you have questions about my recent cancer diagnosis... I want to thank everybody for the calls, notes and good wishes. I feel great. I think I have some of the best doctors in the world. I'm very fortunate that this is curable." 

Dimon said that he will undergo chemo and radiation to treat the cancer, which hasn't spread, and will make additional disclosures as needed with the first disclosure to come in about two months. He hopes that disclosure will cover the successful end of his treatment. IN the meantime, Dimon promised the Board would remain updated on his condition and treatment and reassured investors that a succession plan is indeed in place. 

The CEO's health and succession plan will likely remain a concern for investors moving forward, but the second-quarter report also had some segment reporting worth paying attention to in the present. 

2. Trading slump 
Trading has become an industrywide weakness as the government lowered interest rates and customers hedged risks. JPMorgan had warned investors that this weakness could drag its trading segment down by 20%. 

The second-quarter report did show drops in those areas. Fixed-income trading revenue was down 15% year-over-year to $3.5 billion while equity trading dropped 10% to $1.2 billion. Those losses made the markets segment end the quarter down 14% overall, which was better than what JPMorgan had predicted. 

How did JPMorgan's trading performance stack up to the competition? Citigroup's total banking segment was down 16% thanks to a 26% drop in equity trading and a 12% drop in fixed-income trading. Goldman Sachs' fixed-income trading dropped 10% while equity trading fell 13%.  

Trading was injured in the second quarter but far from the only weak segment for JPMorgan. 

3. Mortgage weakness, asset management strength
Second-quarter mortgages were weak across the industry due to government regulations and the continued aftermath of the housing crisis. JPMorgan's mortgage originations were down 66% compared to the prior year's quarter while mortgage application volume was down 54%. Mortgage banking net revenue was down $772 million to $2.3 billion. The weak mortgage performances helped pull the consumer and community banking segment down 5% year-over-year.

Consumer and community banking was one of many segments reporting down in the second quarter. The notable exception was asset management, which had an 8% revenue increase over the prior year to $3 billion and a 10% jump in net income. Drivers behind the growth included double-digit percentage increases for client assets and retail revenue. 

Competitor comparison
Citigroup and Goldman Sachs both joined JPMorgan in beating analyst estimates on revenue and EPS. Goldman reported at least low-single-digit percent increases in investment banking, investment and lending, and the investment management segment. Citigroup had a shakier quarter complete with a $7 billion Department of Justice mortgage settlement. The company's strongest segment was the "bad bank" arm Citi Holdings, which increased revenue as more assets were sold.

How do the three banking goliaths compare when it comes to metrics? 

*Basel III Common Equity Tier 1 Source: Company press releases

The Basel III Common Equity Tier 1 metric measures financial strength by comparing a company's equity capital to risk-weighted assets. Higher scores are better, but all three companies have high enough scores to earn well-capitalized status. Note, however, that Citigroup was the only one of the group to fail this year's federal stress test so the Tier 1 number isn't the end-all of capital analysis. 

Foolish final thoughts
JPMorgan beat estimates and showed the greatest weaknesses in areas that have hit most of the industry. Jamie Dimon's health will remain a topic of conversation until he makes a wellness announcement. Overall, the company has a solid standing in the industry particularly compared to the stress test failure of Citigroup.