JPMorgan Q1 Earnings Preview [4/13]: What We’re Watching

JPM: JP Morgan Chase logo
JP Morgan Chase

JPMorgan Chase (NYSE:JPM) will kick-start the earnings season for the banks as it prepares to detail its performance for the first quarter of the year on Friday, April 13. We believe the bank would be quite eager to announce its numbers as an improving global macroeconomic situation should have led to results significantly better than what was witnessed in the last two quarters. Interestingly, Wells Fargo (NYSE:WFC) has decided to make its results public on the same day – moving its earnings release date by nearly a week to coincide with JPMorgan’s.

We will update our $39 price estimate for JPMorgan’s stock, which does not yet account for the recently announced dividend payout increase, once the bank’s Q1 2012 numbers are out.

See our full analysis of JPMorgan

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Trading Operations Back On-track

JPMorgan’s trading activities were affected the most in the latter half of 2011 due to the weak global economic environment. The investment banking division’s poor run in Q3 and Q4 (see JPMorgan’s Dimon Says Investment Banking Will Hold up in Q4) significantly hit the bank’s top-line. This is quite evident from our chart for trading yield, which fell from 5.21% in 2010 to 4.7% for 2011, despite an exceptionally strong performance in the first half of 2011.

While trading numbers for Q1 2012 will hardly reach the blockbuster figures from the period a year ago, we expect a marked improvement in revenues with the bond and equity market showing renewed interest for the period.

The Card Business Should Also See Decent Growth

Our analysis for JPMorgan shows that the bank’s credit and debit card business is the most valuable unit, contributing to just under a quarter of its value. In 2010, as consumers tightened their purse strings given the difficult times, the size of JPMorgan’s outstanding loans fell over the year.

There has been a notable improvement in employment and consumer spending figures over the first three months of this year. This should in turn reflect through an increase in JPMorgan’s outstanding card loan portfolio. Also, this quarter JPMorgan should benefit from an improvement in its provision figures for credit card loans as fewer loans are expected to go bad.

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