JPMorgan just gave itself an $8 billion boost

JPMorgan Chase (JPM) typically out-earns all of its rivals, and the nation’s largest bank just gave itself a shot at doing so yet again in the second quarter.

It disclosed late Monday that an exchange of shares in credit card giant Visa (V) would result in an unrealized gain of $8 billion. That will be recorded as a pre-tax boost to earnings during the second quarter.

What JPMorgan did was tender 37.2 million shares of Class B-1 common stock in Visa in exchange for some Class B-2 stock and Class C common stock. The fair-value accounting gain of $8 billion, the bank said, was related to the Class C stock.

JPMorgan said it planned to donate about $1 billion of Class C common stock to the JPMorgan Chase Foundation, recording it as a non-compensation expense.

JPMorgan’s stock was flat Tuesday. Year to date, the stock is up more than 11%.

The shares held by JPMorgan were a remnant of a time when Visa was a bank-owned cooperative.

When Visa went public in 2008 those firms with ownership were given specific equity shares with different values and restrictions than those that traded in the open market.

JPMorgan is one of the few banks still holding that Visa stock, along with PNC (PNC) and Northern Trust (NTRS), which own an estimated 3.5 million and 4.1 million of shares, respectively.

In early April, Visa opened a previously announced exchange offer that allowed these banks to trade in their restricted shares for portions of common stock and cash.

That exchange period ended on May 3.

The unexpected boost for JPMorgan comes roughly a month after it posted first quarter earnings of $13.4 billion. It earned $50 billion last year, the most ever in the history of US banking.

Its first quarter results, however, fell short of market expectations. JPMorgan and other large banks posted weaker net interest income, a key revenue source that captures the difference between what banks earn from their assets and pay for their deposits.

That was a signal that even the country’s biggest lenders are beginning to face challenges from elevated interest rates.

The second quarter isn’t expected to be any brighter, as lending remains tepid and banks are expected to continue paying higher costs for deposits as customers seek out higher yields.

It is not yet known how the accounting gain will affect the bank's final results during the quarter.

The consensus view from analysts as compiled by Bloomberg is that profits are expected to fall by 9% between the first and second quarters while net revenue is anticipated to be down 0.90%.

But Piper Sandler said in a note Tuesday that JPMorgan could benefit from the Visa deal by $5.5 billion after tax, or $1.90 a share, boosting its capital levels.

"We certainly view it as a positive as large banks wrestle with likely higher capital requirements under current regulatory proposals," Piper Sandler analyst Scott Siefers said.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

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