JPMorgan's Core Banking Business Under Pressure, But The Long-Term Outlook Is Still Positive

There was no expectation that bank earnings were going to be strong in the second quarter, not with serious pressures on net interest margin and higher provisioning, but so far it looks as though there aren’t any major surprises – struggling banks like Wells Fargo (WFC) continue to struggle, while JPMorgan (JPM) leads the way with strong results, driven in large part by its strong non-bank operations.

This fiscal year is still looking like a rough one for JPMorgan, and the next couple of years will likely be below the long-term trend, but I expect JPMorgan to deliver low single-digit core earnings growth over the long term, and I believe these shares are meaningfully undervalued on the basis of core earnings and expected ROTCE. Persistently low rates remain a challenge for the entire sector, though, and I would caution investors that this is more of a “slow and steady” performance pick rather than one likely to deliver significant near-term outperformance.

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JPMorgan's Core Banking Business Under Pressure, But The Long-Term Outlook Is Still Positive