NEW YORK (
will take center stage on Tuesday, with its highly anticipated annual investor day.
CEO Jamie Dimon and other top executives will hold presentations followed by question and answer sessions and investors can expect to hear from the management on everything from their economic outlook to the impact of regulations to business goals and targets.
JPMorgan Chase CEO Jamie Dimon
Analysts expect the top brass to present an upbeat outlook, much like they have in the past. Barclays Capital analyst Jason Goldberg notes that shares of JPMorgan have performed in line with, or outperformed, the
KBW Bank Index
in the month following the investor day in each of the past six years.
So investors clearly need to pay attention.
Banks face a myriad of issues on the regulatory and economic front, including the ongoing crisis in Europe, but here are the five broad topics investors will be expecting clarity on.
1. What are your capital plans?
One of the biggest catalysts for bank stocks this year is likely to be a wave of buybacks and dividend increases as banks seek to return excess capital to shareholders.
JPMorgan with its strong capital position is expected to be among the banks poised to return more to shareholders, although Dimon is likely to refrain from commenting on specific plans ahead of the
announcement of the results of the stress tests in March.
Still, investors will be looking for commentary on how the bank intends to use its excess capital, especially after billionaire investor
Warren Buffett praised Dimon for his policy on share buybacks.
Dimon has said that buybacks is an option only after exploring opportunities to invest in organic growth and acquisitions. While organic growth opportunities are limited given the sluggish economic recovery, there is hope that the bank will be able to gain from the deleveraging of European banks.
JPMorgan's board authorized a $15 billion multi-year buyback, of which $9 billion has already been spent, leaving room for another $6 billion. Dimon has also said the board would like to do a modest increase in dividend every year.
2. How is the investment bank performing?
The bank's outlook for its investment banking division is likely to get considerable attention, not least because capital markets activity was a millstone around money center banks' necks in 2011.
As we are now two months into the first quarter, analysts will be looking for a firmer guidance on trading and deal activity and someone is bound to raise the big question on whether the current weakness in the market is structural.
Analysts will also be hoping that the management, which has been vocal in its criticism of regulation, will be able to quantify the effects of Volcker rule on market making if implemented in its current form.
Commentary on any market share gains in investment banking will also be greeted positively. Lastly analysts will be focusing on profitability targets - return on equity.
3. What is the mortgage litigation and foreclosure outlook?
The big banks reached a $26 billion nationwide settlement with the 49 states attorneys general this month. While the settlement brought a prolonged battle to an end, banks appear to have received little immunity from future mortgage claims and the setting up of a new mortgage fraud investigation task force has added to worries that lawsuits will only mount.
JPMorgan also recently noted an acceleration in agency repurchase demands. The bank has, however, said that repurchase claims in the case of private label securitizations face substantial challenges and that the bank has hired "top lawyers" to examine its legal exposure.
Commentary on its housing outlook and its expectations for the pace of foreclosures following the settlement will be other things to watch out for.
4. Where will loan growth come from?
Since loan growth has been among the few bright spots in bank earnings in recent quarters, investors obviously would want to know how sustainable it is.
JPMorgan's wholesale loans were $283bn at year-end 2011, up 24% year-over-year led by higher trade finance and commercial banking. Other big banks also saw significant growth in commercial and industrial loans or business banking.
Some analysts have raised concerns that the bump in the fourth quarter may have been partly seasonal for banks. For JPMorgan, it will be interesting to know how much has come from market share gains as opposed to organic demand.
Plans to scale back retail expansion and efforts to mitigate the revenue loss from regulations that limit fee income such as Durbin Amendment and Regulation E.
5. Should JPMorgan Be Broken Up?
While you have the entire management's attention, why not focus on the big picture. CLSA analyst Mike Mayo argued in a report Monday that the bank's individual parts are atleast a third more valuable than the current market value.
"Top management deserves praise for outperforming peers so well, but at the same time investors have underperformed due to a deliberately calibrated business model. Perhaps the processing business should be sold? Maybe there are some branches to get divested in less attractive areas? Does JPM need to be this big?" Mayo wrote.
JPMorgan has always argued for a diversified business model and to be sure the question of breaking up the big banks can be most easily applied to weaker banks such as
Bank of America
But Mayo notes that investors can still buy the best-in-class separately for each business be it
for cards or
in investment banking.
"If JPM is best-of-breed and it still underperforms, perhaps the breed is not so good or the company needs to better explain the synergies whose benefits are missing from the share price," he argued.
--Written by Shanthi Bharatwaj in New York
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