Wide-moat JPMorgan Chase (JPM) reported second-quarter earnings per share of $2.76, missing the $2.89 FactSet consensus but roughly in line with our own estimate of $2.73. Revenue on a reported basis was $30.71 billion, flat quarter over quarter and roughly in line with our own estimate of $30.76 billion. Fees came in below what we had projected while net interest income beat our expectations.
Management lifted its full-year net interest income (excluding markets) guidance to $58 billion from $56 billion. We expect this overall theme to continue, with higher rates driving exceptional net interest income growth while fees face pressure over the medium term due to economic uncertainty (lower investment banking fees) and lower market levels (lower wealth-management fees). We are still a bit skeptical of how durable a federal-funds rate above 2.5% will be by the time we get into 2024, but at least for now, aggressive rate hikes remain on the table.
The market seems to be reacting negatively to this earnings report; we think it may be overreacting. Return on tangible equity was still 17% during the quarter, while net interest income is coming in strong, loan growth continues apace, and misses on fees are generally more cyclical in nature; it is not all that surprising to see some weakness at this phase in the cycle. Expenses also came in largely as expected, and full-year expense guidance is unchanged.
Bank stocks could continue to face some pressure in the near term, as recession concerns do not seem likely to go away anytime soon. In the meantime, we think valuations for our U.S. bank coverage are looking much more interesting these days. As we make some adjustments to our projections (largely focused on our near-term fee and net interest income projections), we do not foresee making a material change to our current $151 fair value estimate; we view the shares as moderately undervalued.
