JPMorgan Chase & Co. (JPM) typically outperforms its competitors, and the nation's largest bank is on track to return to profitability in the second quarter.
The company said late Monday that a stock swap in credit card giant Visa (V) would result in an $8 billion unrealized gain. This will be recorded as a boost to pre-tax profit in the second quarter.
JPMorgan made a bid for 37.2 million shares of Visa's Class B-1 common stock in exchange for Class B-2 shares and a portion of Class C common stock. The bank said the $8 billion fair value accounting gain was related to Class C stock.
JPMorgan announced that it will donate approximately $1 billion in Class C common stock to the JPMorgan Chase Foundation, which will be recorded as an uncompensated expense.
JPMorgan stock was flat on Tuesday. The stock is up more than 11% since the beginning of the year.
JPMorgan's stake is a holdover from the days when Visa was a bank-owned cooperative.
When Visa went public in 2008, ownership companies were given certain shares with different values and restrictions than companies trading on the public market.
JPMorgan is one of the few banks that still owns Visa stock, along with PNC (PNC) and Northern Trust (NTRS), which hold an estimated 3.5 million and 4.1 million shares.
In early April, Visa launched a previously announced exchange offer that allows these banks to exchange restricted stock for a portion of common stock and cash.
That exchange period ended on May 3rd.
The unexpected tailwind for JPMorgan comes about a month after the company posted a first-quarter profit of $13.4 billion. Last year's revenue was $50 billion, the highest in U.S. banking history.
However, the first quarter results were lower than market expectations. JPMorgan and other large banks suffered a decline in net interest income, a key source of income that captures the difference between a bank's income from its assets and the amount it pays out on deposits.
This was a signal that even the country's largest financial institutions were beginning to face challenges from rising interest rates.
The second quarter is not expected to get any brighter as lending remains weak and banks are expected to continue increasing deposit costs as customers seek higher yields.
It is still unclear how the accounting profit will impact the bank's bottom line performance during the quarter.
The consensus view of analysts compiled by Bloomberg is that profits are expected to decline 9% between the first and second quarters, with net revenue expected to decline 0.90%.
However, Piper Sandler said in a note on Tuesday that JPMorgan could benefit from the Visa deal by $5.5 billion after taxes, or $1.90 per share, and increase its capital levels.
“We certainly think this is a positive as large banks may be addressing higher capital requirements under current proposed regulations,” said Piper Sandler analyst Scott Schieffers. ” he said.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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