It was another respectable performance from JPMorgan Chase (NYSE:JPM).
Net income in the first quarter came in at $2.1 billion, or $0.40 per share, compared to $0.67 per share in the same period last year. Analysts were looking for net income of $0.32 per share. Net revenue was $25.03 billion, while credit costs surged to $10 billion, $4 billion of which represented bulking up reserves.
Earnings trounced expectations, yet shares barely budged this morning. What gives? After Goldman Sachs and Wells Fargo (NYSE:WFC) came out with bonanza results, investors are "expecting surprises," a practice that's bound to end in tears.
And while today's results weren't quite as burly as Goldman Sachs' (NYSE:GS) recent earnings explosion, they're solid nonetheless. Fixed-income markets revenue -- part of the same segment that ignited Goldman's quarter -- was a record $4.9 billion for the quarter. Thanks to last year's WaMu acquisition, deposit growth surged 62% year-over-year. That makes JPMorgan Chase the nation's largest bank by deposits, giving it a newfound advantage over wayward peers Bank of America (NYSE:BAC) and Citigroup (NYSE:C).
On the capital side, JPMorgan Chase is still a relative beast. Tier 1 capital is 11.3% -- 9.2% without TARP. Tangible common equity is now 4.3%; not a dynamite number, but still better than most of its peers.
That raises the obvious question: When will JPMorgan Chase follow through on its desire to repay the $25 billion of TARP capital? CEO Jamie Dimon spouted Trump-esque confidence on this issue during a conference call this morning, saying, "We could pay it back tomorrow -- we have the money." adding, "I don't see why we need to raise money," referring to its ability to repay taxpayers without raising additional private capital.
Don't see why? With due respect to Dimon, I can think of a few reasons.
Let's assume JPMorgan Chase is granted permission to repay TARP without raising more capital. Indeed, Tier 1 would remain strong. Tangible common capital, however, doesn't have as nearly as much room for error. Repaying TARP wouldn't directly have an impact on tangible common capital, but the preferred shares injected by TARP last fall do serve as the de facto source of common equity when a bank gets in over its head -- Citigroup's massive capital conversion last fall being the prime example. I'm not comparing JPMorgan Chase to Citigroup by any means, but the fragility of the banking sector as a whole would almost certainly give regulators pause on a JPMorgan Chase payback.
Despite dominating the industry, JPMorgan Chase still has massive exposure to credit cards, a potentially explosive investment banking unit (thanks in part to Bear Stearns), and is staring down a real estate monster that's still disastrous by any measure. Regulators know this, and are unlikely to allow it to repay $25 billion without raising private funds on its own.
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