NEW YORK (
kicks off fourth-quarter reporting season for the big banks before Friday's opening bell, and its performance for the final three months of 2009, like most of its counterparts, is likely to be a bit more tame than the previous quarter.
Jamie Dimon's powerhouse has been able to earn a profit throughout the financial crisis by seizing upon dislocations in the industry, and its fourth-quarter results will once again showcase the institution's breadth with the impact of its fire-sale acquisitions of
back in 2008 expected to continue to bulk up the bottom line.
But while the company was one of the first banks to repay the U.S. government for preferred securities they owned under the Troubled Asset Relief Program back in June 2009, JPMorgan is still feeling the reverberations of the credit crisis. It continues to deal with a fair amount of soured home equity lines, residential mortgages and credit card loans, and investors will be looking for continued progress on that front.
The current average estimate of analysts polled
is for JPMorgan to earn 61 cents a share in the December quarter. Of the Wall Street analysts that weighed in on JPMorgan's earnings, estimates ranged between a high of 78 cents a share to a low of 45 cents a share. Either way, the company is slated to post a sequential decline from its performance in the
when it earned 82 cents a share.
The company's investment bank unit contributed more than half of its earnings in the third quarter -- $1.9 billion of the $3.6 billion total -- and it should be a profit center again but there are questions. For example, Citigroup recently said it believes
for the big banks in the fourth quarter, and it lowered its estimate on JPMorgan and others. In the third quarter, the company's fixed income markets business accounted for $5 billion of the investment bank unit's $7.5 billion in revenue.
Still, the estimated performance for the fourth quarter represents a significant improvement from the final three months of 2008, when the company made just 7 cents a share, as many peer banks posted losses in the same timeframe.
Lower lending-related business and credit problems are expected to persist in the quarter. Overall, the company is likely to report a decline in credit losses for the fourth quarter on a sequential basis, but at least a portion of that pullback could be unsustainable, particularly in the credit card portfolio, Sandler O'Neill & Partners analyst Jeff Harte points out. JPMorgan implemented a "payment holiday" in June, in which selected credit card customers were given a one-month reprieve from making payments on their JPMorgan credit card, Harte says, and its impact may skew the numbers.
"We expect the payment holiday to have resulted in a significantly lower credit card loss rate in the month of December," Harte writes. "Unfortunately, the positive impact should be short-lived, with card credit losses" rising again in the first quarter.
Commercial real estate is also not in the clear yet.
quoted Chairman and CEO Jamie Dimon speaking Monday at the JPMorgan Chase Healthcare Conference in San Francisco as saying that commercial and residential real estate are still problematic.
"Commercial real estate is a train wreck, but it's already happened," Dimon said, according to
. "I don't think it's going to hurt the economy that much."
JPMorgan's revenue is likely to flinch from the third quarter, as the company feels the pinch from lower trading-related benefits and continued stresses in lending and credit. The current consensus analysts' estimate is for revenue of $27.02 billion in the fourth quarter, down about 6% on a sequential basis.
"A more subdued level of market appreciation across global equity markets, reduced volatility, and investor desire to lock in the year's gains once December arrived appears to drive visibly lower trading volumes" last quarter, writes Wells Fargo Securities analyst Matthew Burnell. "Underwriting volumes in both debt and equity continued to grow, however, with debt fees also expanding while equity fees fell slightly."
Sandler O'Neill's Harte estimates the company's trading revenues will fall by 23% from the third quarter to $4.6 billion. Equity trading revenue in particular will decline by 5% sequentially, while fixed income is expected to fall by 26% sequentially to $3.3 billion, Harte estimates.
"Reduced activity levels in higher margin products like non-agency mortgage-backed securities and corporate bonds primarily drive our assumed 'core' fixed income trading decline," he writes in a recent note.
On the other hand, investment banking revenue could rise by 13% from the third quarter to $1.9 billion. Equity and debt underwriting will rise marginally, but Harte estimates a 40% boost from M&A advisory revenue, he writes.
"Although JPMorgan's completed advisory volume increased by 125% sequentially, the average deal size increased by 78%, which should weigh on the revenue yield," he writes.
Shares of JPMorgan have fallen around 3% over the past 90 days, despite the fact that they hit a new 52-week high of $47.47 on Oct. 14, just prior to the company's third-quarter report the next day.
The stock has started 2010 strong, however. Early in Thursday's session, the shares were changing hands at $44.31, up 0.2% for the day, and more than 6% from their close at $41.45 on Dec. 31. At current valuations, the stock is trading at a little more than 14 times its estimated earnings for fiscal year 2010, a better ratio than
Bank of America
(more than 20 times),
, (nearly 44 times), and
, (close to 16 times).
Sentiment on Wall Street towards the company remains bullish with 15 of the analysts covering the stock rating it at either strong buy or buy. The median 12-month price target of the analysts stands at $54, according to
, a level that represents appreciation of more than 20% from current levels.
Wildcard: What Will Jamie Say?
Chairman and CEO Jamie Dimon was vocal about his oft-stated belief that no bank should be considered "too big too fail" during his appearance before the Financial Crisis Inquiry Commission in Washington, D.C. on Wednesday, and it's a good bet he'll get a few questions about his testimony on Friday. But Dimon has been increasingly taking a back seat during JPMorgan's conference calls, however, instead letting CFO Mike Cavanagh take charge of the presentation.
Still listen up for any colorful commentary that Dimon may make during the Q-&-A session. Key points of interest to investors will be his view on the timing of a peak in loan losses, what future reserve levels may look like, and when the company will raise the dividend.
The company has previously suggested that a dividend increase was forthcoming in the early part of 2010. The most recent statement from Dimon in early December was that such a move was unlikely until the second quarter but the subject is still sure to come up, and any detail he provides on the timing will be closely watched.
Written by Laurie Kulikowski in New York