REVENUEMiss -0.6%
EPSMiss -6.1%
Actuals vs. estimates
| Metric | Actual | Consensus | Surprise |
|---|---|---|---|
| RevenueNet revenue - managed | $50.91B | $51.23B | ▼ Miss -0.6% |
| EPS(GAAP diluted) | $5.57 | $5.93 | ▼ Miss -6.1% |
Verdict
- Revenue missed: managed net revenue of $50.9 billion against the $51.2 billion estimate, 0.6% short, even as it grew 8% year on year.
- EPS missed by more: $5.57 diluted against the $5.93 estimate, 6.1% short. Excluding $658 million of net investment securities losses, EPS was $5.75.
- The release carries no forward guidance, so the quarter has to stand on its own numbers.
- The one thing that matters: the $0.18 securities-loss charge explains only half the EPS shortfall. The rest is noninterest expense up 12% against revenue up 8% - a strong revenue quarter that did not reach the bottom line.
Key metrics
| Metric | Reported | Prior year | Change |
|---|---|---|---|
| Return on tangible common equity | 20% | 20% | — |
| Net interest income | $27.1 billion | — | up 13% |
| Markets revenue | $10.3 billion | — | up 15% |
| Equity Markets revenue | $5.0 billion | — | up 49% |
| Fixed Income Markets revenue | $5.4 billion | — | down 4% |
| Provision for credit losses | $2,743 | $3,403 | (19)% |
Guidance changes
No financial guidance change disclosed.
Quality of earnings
- Only half the miss is the one-time item. The $658 million of net investment securities losses cost $0.18 per share; add it back and EPS is $5.75, still $0.18 below the $5.93 estimate.
- Negative operating leverage did the rest. Net revenue rose 8% to $50.9 billion while noninterest expense rose 12% to $27.3 billion, holding the overhead ratio at 54% with revenue-related compensation and front-office headcount the named drivers.
- The top line leaned on its most volatile component. Equity Markets revenue up 49% to $5.0 billion supplied the bulk of the 15% gain in Markets revenue, while Fixed Income Markets fell 4% to $5.4 billion.
Gotchas & watch items
- Credit costs fell to $2.7 billion from $3.4 billion, but the mix moved the wrong way: net charge-offs were down $389 million while the firm took a $539 million net reserve build, $452 million of it in the CIB, primarily in Wholesale.
- Net repurchases were cut to $664 million against a $4.4 billion dividend, with CET1 at 13.9% - management says it reduced buybacks deliberately and will deploy the capital later.
- Corporate swung to a $455 million net loss from $825 million of net income, with net interest income down $737 million and noninterest revenue a $576 million loss against $297 million of revenue a year ago.
- Home Lending net revenue fell 3% to $1.2 billion on lower production revenue, the one consumer line that shrank.