JPMorgan Chase 2Q21 Earnings Analysis

Business Description:

• Massive increase in deposits YoY mostly from Increase in Federal Reserve System balance sheet

• Massive increase in net income from release of reserves for credit losses of $3.0 billion in 2Q21

Catalysts:

• Economic recovery in the US and around the World

• Rising interest rates

• More release of credit losses → do not contribute to actual growth, only paper growth

• Increased dividends and share buybacks

Risks:

• Zero interest rates, QE and banking regulations (Dodd-Frank Act of 2011) makes makes it harder for banks to do business

Financial Analysis:

• Revenues of $31.4 Billion in 2Q21 down $1.7 Billion QoQ

• Revenues of $121.9 Billion in TTM vs $119.5 Billion in FY20

• Net income of $11.9 Billion in 2Q21 dowm $2.4 Billion QoQ

• Net income of $47.7 Billion in TTM vs $27.4 Billion in FY20

• ROE of 18% vs 7% for 2Q20

• ROTCE of 23% vs 9% for 2Q20

• Overhead Ratio of 56% vs 50% for 2Q20

• CET1 Capital Ratio of 13.0%

• Common Dividends of $2.7 Billion or $0.90 per share

• $5.9 Billion of common shares buybacks

Valuations

• My personal Biases

  • 5.2% of my portfolio, buying since 2016

  • Likes management

• Assumptions

  • Net income of $48 Billion for FY21 with further release of credit losses and economic recovery

  • Net income falls to $43 Billion in FY20, increasing by 4% annually

  • Discount Rate of 10% for the next 5 years

  • Terminal Growth rate of 2%

• Exit Multiples Analysis

  • Based on Tangible Book value in 2025

  • 2% annual increase in book value for base case (2.3% in last 5 years)

  • 2.3% for bull case and 1.8% for bear case

  • 4% of tangible book value paid in dividends every year (average for last 5 years)

  • 15% of shares outstanding bought back over next 5 years in base case, 20% in bull case and 10% in bear case

  • Price to Tangible book value per share ranged from 1.2 to 2.3 in last 5 years, currently at 2.3, expected to rise if interest rates rises

Conclusion

• Stock undervalued but future returns not expected to be much at current price

• Good hedge against rising interest rates

• Good stock to hold long-term

Full analysis on my Research Partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/33539947