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What JPMorgan Shareholders Really Care About

NEW YORK (TheStreet) -- When JPMorgan Chase (JPM - Get Report) reports fourth-quarter earnings Tuesday, the immediate headlines would likely focus on whether or not the bank beat estimates, whether its legal costs, which wiped out profits in the third quarter, continued to climb and what the bank's outlook is for 2014 amid a more complex regulatory climate.

But the most relevant question for long-term shareholders is whether the bank can continue to deliver a high return on capital. That's what makes the large legal tab and the volatile earnings stream from trading operations bearable for shareholders.

A higher capital burden and regulatory compliance costs has made it more difficult for banks to deliver returns in the high teens. Five years past the crisis, this question remains largely unanswered and, unfortunately, the fourth-quarter results are unlikely to reveal anything new.

Shareholders might have to wait for the bank's investor day in February, when it sets forth its strategy and targets for the year.

Analysts expect JPMorgan to report fourth-quarter earnings per share of $1.35 on revenues of $23.685 billion, according to estimates from Thomson Reuters.

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The fourth quarter is expected to be relatively clean, with the bank having already made a large reserve build in the previous quarter.

JPMorgan reported an unexpected loss in the third quarter, the first loss since Jamie Dimon took over as CEO in 2006, after it took a $7.2 billion post-tax legal charge to meet escalating demands and penalties from multiple government agencies.

In the fourth quarter, the bank announced a number of legal settlements, including a $13 billion settlement with the Department of Justice over mortgage-backed securities sold by the bank and its Bear Stearns and Washington Mutual units before the crisis. The bank also paid $4.5 billion to settle suits from private label investors.

It also recently announced a $1.7 billion settlement over claims that it failed to alert authorities about suspicious activity Bernard Madoff, even though it cut back on its own exposure to the $65 billion Ponzi scheme. The bank said it would take a $850 million charge in relation to the Madoff settlement in its fourth quarter.

Other aspects of the business are expected to be more of the same. Sluggish loan growth, weak fixed income trading revenue offset by stronger investment banking fees, a sharp drop off in mortgage banking income (this has been priced in) and continued reserve releases on the back of improving credit quality.

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