JPMorgan Chase (JPM 1.19%) reported second quarter earnings that were quite solid. In this Fool Live video clip, recorded on July 19, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss the numbers and key takeaways for investors.
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Jason Moser: I wanted to kick the conversation off today with JPMorgan. We know going into this earnings season, Jamie Dimon the CEO of the bank, definitely had some concerns that inflation might not necessarily be transitory. Some others, maybe thinking, but what stood out to you this quarter for JPMorgan?
Matthew Frankel: Well, it was weird because the stock actually dropped a little bit right after the report even though the bank beat expectations on both revenue and earnings. As we mentioned earlier several times that the banks put a lot of money aside for loan losses during the pandemic and that we might see some reserve releases. That was absolutely the case here. JPMorgan released $5.2 billion, gives you an idea of how much of things the economy's improved. That accounted for over a dollar a share in earnings, all by itself. So it beat earnings expectations, it beat revenue expectations. Trading revenue was actually pretty impressive. Remember, in our earnings preview, I was concerned that we would see trading revenue really just fall off a cliff. If you remember, the first quarter was really volatile in the stock market, which generally makes for good trading revenue. Volatility in not only stocks, but in interest rates as well, means more people are trading bonds, more people are trading stocks more frequently. Think institutional investors, things like that. So trading revenue in the first quarter blew everyone's expectations out of the water. In the second quarter, it was a boring market in a lot of ways, especially compared to the first quarter. JPMorgan's trading revenue actually beat expectations on the fixed-income side and the equity side. Fixed income was $800 million ahead of expectations, equities was a billion over expectations. As we go through, you will see some of its peers did not post numbers like that, so that was very promising. But trading revenue is one of those things where it's very tough to predict, and it jumps around from quarter to quarter on a lot.
Moser: It seems almost like it's if you look at something like a Disney (NYSE: DIS), media company where the movie revenue, it can be so lumpy because it's hit driven. You can never really predict how a movie is going to be received, and it's not like a steady stream of just hit movies always come in. It's unpredictable.
Frankel: Right. "Nature of it" is really a good way to describe it. Because one really volatile week of the stock market can really boost your equities trading revenue, which is what makes it so tough to predict. Because you have to think back like, OK, it was really volatile in March, it wasn't too volatile in February, then we had that one-day flash crash wherever it was trading, things like that. It can be really tough to predict. So I don't put too much stock into trading revenue, which a lot of investors don't, which is why those were blowout numbers, but the stocks still dropped. Interest margins really didn't creep up as much as we would hope, still really, really lower than last year. Jamie Dimon, called loan demand challenging. Even though the loan portfolio increased by 1 percent over the first quarter, it's still a big drop over from a year ago. Deposit base is up 23% year over year. People have money, they don't need to borrow it, is actually the big take on it. A very profitable quarter return-on-equity was 18%, which is really good for a bank. Anything in the double digits is usually considered good. Well-run bank, doing well, beat trading. But we'll see how much that lasts.