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Bad News for Big Banks Favors Bank of America, JPM

Based on the current quarterly payout of 38 cents, JPMorgan's shares have a dividend yield of 2.64%. Following the Fed's announcement of CCAR results on March 26, Usdin expects JPMorgan to announce an increase in the dividend to 42 cents and an approved plan to buy back up to $5 billion in common shares from the second quarter of 2014 through the first quarter of 2015. Over the past two years, JPMorgan hasn't completed its approved stock buyback plans, because of losses springing from the "London Whale" trading debacle in 2012 and the series of mortgage related settlements in 2013.

Usdin estimates the bank will post first-quarter EPS of $1.34, with a 2014 EPS estimate of $5.80 and a 2015 EPS estimate of $6.30 from 2015.

"Relative to the other money-center banks, JPM's near-term numbers look more reasonable at this time," Usdin wrote, meaning that investors are likely to see more EPS estimate cuts for Bank of America and Citigroup heading into first-quarter earnings season.

"Overall, we look for total noninterest expense of $15.5B in 1Q and expect a downward trajectory throughout the year as JPM right-sizes the mortgage cost base and benefits from its 'business simplification" plans,' Usdin added. He rates JPMorgan Chase a "buy," with a price target of $66.00.

Citigroup

Citi will announce its first-quarter results on April 14, with a consensus EPS estimate of $1.22, compared to a restated 77 cents in the fourth quarter and $1.23 in the first quarter of 2013.

Shares of Citigroup closed at $47.43 Monday, down 9% this year, following a 32% return during 2013. The shares trade for 0.9 times tangible book value and for 8.3 times the consensus 2015 EPS estimate of $5.72. The consensus 2014 EPS estimate is $4.86.

Usdin on Monday cut his first-quarter EPS estimate for Citi rather significantly to $1.14 from $1.45, while lowering his 2014 EPS estimate $4.60 from $5.05 and his 2015 EPS estimate to $5.60 from $5.70. The first-quarter results will not include the net $360 million in pretax expenses from the fraud discovered in Citi's Banamex unit in Mexico, because the company restated its fourth-quarter results.

"We are currently $0.10 below the Street for 1Q, but expect the gap to close somewhat as the Street updates models prior to earnings. We remain 2% below the Street for '15 and believe the bank's 10% return on tangible equity target for next year could be tough to achieve (we model 9%)," Usdin wrote. He rates Citigroup a "hold," with s $56 price target.

Following the Federal Reserve's CCAR announcement on March 26, Usdin expects Citi to raise its quarter dividend to 10 cents a share from a penny, and to announce approval for $4 billion in share buybacks, up from $1 billion a year earlier.

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