One regulatory investigation was recently settled when the company agreed to pay $410 million to settle charges of energy market manipulation.
Before the settlement was announced, JPMorgan said it was considering "strategic alternatives" for its physical commodities business, including energy trading, which would also lower its trading revenue.
KBW's Mutascio in a report on Tuesday considered the effects of a possible preferred equity raise and trading revenue decline in 2014 on JPMorgan's earnings estimate and share-price multiple.
JPMorgan estimated its supplementary Basel III Tier 1 leverage ratio was 4.7% as of June 30."In our analysis, we assume the holding company will maintain a leverage ratio of 6% -- not the 5% proposed by the Fed. In doing so we are ensuring the company maintains an internal buffer over the 5% as well as some capital cushion to downstream to the bank subsidiary level, if needed," Mutascio wrote. Factoring in JPMorgan's estimates of $3.5 trillion in leverage assets under the proposed leverage capital rules, Mutascio estimated the company would need $45.5 billion in additional capital to bring the supplementary Basel III Tier 1 leverage ratio to 6.0%. Based on Mutascio's 2014 EPS estimate of $6.25, along with a similar dividend payout ratio and share buyback plan as JPM put in place for this year, the analyst estimated "the company can generate $21 billion in organic capital." "We have assumed the remaining $24.5 billion shortfall is covered equally by the rationalization of risk weighted assets and the potential for the issuance of preferred stock," Mutascio wrote. If JPMorgan were to issue $12.25 billion in preferred stock, it would lower KBW's 2014 EPS estimate by 19 cents to $6.06. Moving ahead to expected revenue declines from selling the physical commodities trading business and the Volcker Rule, Mutascio estimated that with a $4.0 billion or 32% decline in gross fee revenue, "assuming a 35% tax rate as well as a 35% comp ratio," JPMorgan's earnings would decline by a further 45 cents a share, for a 2014 EPS estimate of $5.61. That would be a 10% earnings reduction for JPMorgan, and the shares would still be trading cheaply, at 9.9 times that hypothetical estimate.
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