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JPMorgan's Success Raises Stakes

JPMorgan Chase's strong first-quarter report is helping the big bank stocks Wednesday, but those same sterling numbers could produce the opposite effect as earnings season wears on.



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JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. Report

's strong first-quarter report is helping the big bank stocks Wednesday, but those same sterling numbers could produce the opposite effect as earnings season wears on.

After all, names like

Bank of America

(BAC) - Get Bank of America Corp Report



(C) - Get Citigroup Inc. Report

have already rallied impressively this year as evidence that the economy was embarking on a cautious recovery pointed to credit costs reaching an inflection point in the first quarter.

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

has quietly come along for the ride as well, gaining more than 20% year-to-date. The respective run-ups in

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Goldman Sachs


Morgan Stanley

have been more modest but they, like JPMorgan, held up better than most during the crisis. These companies all have varying exposures to similar businesses and asset classes, but JPMorgan's diversified model lets it sit in the middle of the bunch.

Now, not only has JPMorgan provided evidence of better credit quality, it also managed to come in comfortably ahead of Wall Street revenue expectations. Top-line growth is the next big hurdle for the big banks to clear to get back to normalized earnings so CEO Jamie Dimon's success has only ramped up expectations for the rest of the group.

Brian Moynihan, for example, in his first full quarter as Bank of America's CEO, will be expected to

show revenue grew at the nation's largest bank for the first time in a year

on Friday, and if he can't, the stock, which is setting a new 52-week high on Wednesday, looks even more vulnerable now than it did before JPMorgan's numbers hit the tape.

Over at Citigroup, Vikram Pandit continues to

pare down the balance sheet

, but Wall Street could start to expect more than the average analysts' projection for flat revenue over the next few quarters if JPMorgan shows it can consistently outperform.

The bar just rose for Goldman Sachs and Morgan Stanley as well since JPMorgan's revenue beat was

driven by its investment bank operations, particularly fixed income trading


>> Who Owns JPMorgan?: John Paulson

On top of all this, Dimon continues to talk about his desire to lift the company's annual dividend to as high as a $1 per share from the current payout of 20 cents. The timing of eventual dividend hikes is a question other bank CEOs have avoided for the most part, but Dimon and CFO Michael Cavanagh seem determined to throw out a number every chance they get.

Dimon seemed almost chipper on the company's conference call Wednesday, sounding an optimistic tone on the direction of the economy that had to stand out to long-time listeners. He is notorious for being cautious when speaking with the investment community, and became particularly so as the financial crisis intensified, so the change supports the idea that he believes the recovery is for real, and that JPMorgan's prospects are brightening.

If that's the case, the big banks could start to separate a bit, as the competition will be expected to keep up. Under that scenario, just being able to show stabilization or slight improvement in credit quality won't be enough to support higher valuations from here.

--Written by Michael Baron and Laurie Kulikowski in New York.