JPMorgan Earnings Preview: What We’re Watching

July 14th, 2011 by Trefis Team
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JPM: JP Morgan Chase logo
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JP Morgan Chase

JPMorgan (NYSE:JPM) is slated to release its performance results for Q2 2011 today. One of the largest and most diversified banks in the US, JPMorgan will flag-off the earnings season – revealing its numbers before competitors like Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS). And we are interested the most in seeing the company’s sales & trading revenues over the period. The performance of its investment banking division will also contribute a lot to the income JPMorgan reports for this quarter.

We have a $45.60 price estimate for JPMorgan, which is around 15% ahead of the market price.

Trading revenues are expected to be low

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JPMorgan’s sales & trading division contributes to around 16% of our $45.62 value for the company’s stock, and has been a major contributor to the company’s top-line in previous quarters. But with economic growth in the US slowing down over the last quarter, there has been a significant decline in trading activities. To add to that, the stricter capital requirements which big banks have to adhere to has likely squeezed yield figures for the period. We talked about this in detail in our article, Analysts Lower Estimates on Higher Reserves & Growth Concerns.

There was no respite for the bank across the Atlantic either as the deteriorating debt situation in Europe only narrowed trading opportunities in the region. All these factors point towards revenues from trading activities to take a hit in this quarter.

Investment banking operations are expected to be the saving grace

The investment banking division contributes to slightly less than 7% of our estimated value for JPMorgan’s stock. And the strong performance by the company in mergers & acquisitions (M&A) advisory services over the last quarter will go a long way in helping make up for the loss of revenue due to repressed trading activities.

JPMorgan retained its position as the largest earning investment bank in the world in terms of fees generated over the first half of 2011. [1] The company reportedly roped in almost $3.4 billion in fees over the first six months of the year – topping the league table yet again. The bank performed best in both the global loans and global bonds categories reported.

See our full analysis of JPMorgan

Notes:
  1. Global Investment Banking Review, Thomson Reuters Deals Intelligence [↩]