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JPMorgan Ready to Take Wall Street Top Spot (Update 1)

In 2011, JPMorgan nearly took the market share lead in M&A advisory volume until a $39 billion merger between AT&T (T) and T-Mobile USA that it advised on was iced by antitrust regulators in December.

The deal breakup added to a gloomy quarter for JPMorgan's investment banking unit, which turned a $726 million 2011 profit on $4.36 billion in revenue. Nevertheless, those earnings reflected a 25% and 45% slowdown in debt and equity trading revenue, respectively.

Watch for trading to pick up again on Wall Street in the first quarter, with JPMorgan, Bank of America, Goldman Sachs and Citigroup all expected to post 20%-plus revenue increases, according to Graseck of Morgan Stanley. In fixed income trading, Goldman Sachs is expected to see trading revenue increase over 100% from the fourth quarter. "GS is the high water mark with Q/Q FICC up an estimated 124%," notes Graseck.

Graseck expects a drop in investment banking fees of 10% and 3%, for the first quarter and 2012, respectively as Wall Street struggles to recover from a second half slowdown. Dealogic data confirms the notion. All of the five largest investment banks are tracking at over 30% declines in first quarter revenue when compared with 2010. Only RBC Capital Markets (RBC) and HSBC (HBC) are expected to show year-over-year investment banking revenue increases. Share price gains at investment banks like Morgan Stanley result from an investor switch to a glass half full mentality from sector-wide pessimism in late 2011, said Credit Suisse analyst Howard Chen in a recent note.

Earlier in March, JPMorgan led a spree of banking sector dividend and buyback increases, bumping up its its quarterly dividend to 30 cents per share from 25 cents. It also authorized a new share repurchase program of $15 billion. JPMorgan spent nearly $9 billion repurchasing shares in 2011, but the strategy didn't lift its shares, forcing CEO Dimon to apologize for his timing by year-end.

Dimon stressed that the bank will buyback shares "only when we are generating capital in excess of what we need to fund our organic growth and when we think it provides excellent value to our existing shareholders." Still, in a February letter to Berkshire Hathaway (BRK.A) shareholders, Warren Buffett praised Dimon's priority on investing in growing JPMorgan over buybacks.

After JPMorgan's poor timing on 2011 buybacks, analysts are more optimistic about the banks 2012 moves. "We believe JPM's strong capital position and management approach should allow the bank to increase dividends and capture market share as management continues to invest in expanding the franchise," wrote Guggenheim Partners analyst Marty Mosby in a Mar. 21 note upgrading JPMorgan's price target to $53 from $51.

Overall, analysts polled by Bloomberg give JPMorgan shares a price target of $49.04, with 34 "buy" ratings to go with 5 "holds." Goldman Sachs and Morgan Stanley shares warrant price targets of $134.05 and $22.14, respectively.

For more on bank investments, see why Warren Buffett is resting as John Paulson digs in and what the investment guru knows about bank investing that you don't. See potential ratings downgrades for more on post-stress test risks and why corporate cash isn't driving record deals.

--Written by Antoine Gara in New York
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