NEW YORK (TheStreet) -- JPMorgan Chase (JPM) will be the first of the big banks to share whether trading revenue took as big a hit last quarter as analysts have theorized.

The bank is set to kick off second-quarter reporting season for the financial sector before Thursday's opening bell, and TheStreet plans to live blog the conference call. The spring's pullback in the broad markets is believed to have put a crimp in the revenue the big banks glean from the trading activities of their clients, so Wall Street will be watching closely to see how JPMorgan fared.

Investors tend to use JPMorgan's results as an indicator for the rest of the industry, even though the $2.1 trillion-asset bank is more likely a "high water mark" for the large-cap banks, writes Stifel Nicolaus analyst Chris Mutascio.

Overall, analysts are expecting JPMorgan to post substantial growth in profits compared to the second quarter of last year, when it showed its feathers by being the first of the money-center banks to pay back the $25 billion it owed in government bailout funds. Still the forecast is for sequential declines in both earnings and revenue from blowout first-quarter levels.

During the April-June period, Chairman and CEO Jamie Dimon's vision of expanding outside the U.S. to grab more institutional and corporate customers became clearer. As part of a broader management shuffle that could signal further contenders as Dimon's eventual successor, the bank named Heidi Miller to head its international banking franchise in June.

It also announced a joint venture in China last month as it looks to grab a bigger slice of the lucrative capital markets business there.

Should JPMorgan beat Wall Street expectations for the second quarter -- something it has done at least the past five quarters -- it would stoke hopes that the other big banks will be able to beat Wall Street's expectations as well.

The bulk of the big bank names, along with many regionals, are slated to report their results over the next two weeks or so, including Bank of America ( BAC) and Citigroup ( C) on Friday; Goldman Sachs ( GS) and Morgan Stanley ( MS) on July 20; and Wells Fargo ( WFC) on July 21.


The current average estimate of analysts polled by Thomson Reuters is for JPMorgan to earn 71 cents a share for the three months ended June 30. That performance would more than double its profit in the year-earlier quarter, but still come in slightly below its profit of 74 cents a share in the first quarter (JPMorgan took a 27-cent charge in the year-earlier quarter to repay TARP.)

Of the 22 analysts that weighed in, estimates ranged from as low as 59 cents to as high as 90 cents a share for the June period.

Banks overall will be looking to capitalize on improving credit quality metrics as the quarters where banks took massive provisions are slowly becoming a thing of a past in the current credit cycle.

But investors will be wary of any indications of a slight veer from that notion in second-quarter numbers on fears that a so-called double-dip recession is still a possibility. Last quarter, the larger banks began minimal reserve releases, which analysts for the most part expect to continue in the second quarter, particularly related to credit cards.

Barclays Capital analyst Jason Goldberg wrote in a research note last week that he believes lower provisioning as well as higher net interest margins will lead to above-consensus earnings for many banks this quarter.

"For the biggest banks (BAC, C, JPM), as experienced in real-time, we believe market conditions softened in May and June resulting in a more challenging trading environment and subdued issuance," Goldberg said. "Still, diversified revenue sources, reserve releases, and CVA credit value adjustments, should soften this blow. While we lowered estimates (though not below consensus), these stocks remain cheap."

Sandler O'Neill & Partners analyst Jeff Harte significantly cut his estimate on JPMorgan to a profit of 59 cents a share last week as part of a broad call on the quarter. Harte attributed the lower estimates to the inclusion of an estimated $600 million (15 cents per share) charge from the U.K. banker bonus tax and the net impact of reduced capital markets-related revenue, he said.


Analysts expect JPMorgan to post revenue of $25.8 billion, almost 7% lower than its year-ago quarterly revenue, according to Thomson Reuters.

Lower fee revenue, specifically for banks exposed to the capital markets businesses because of the weakened business environment, as well as from declines in deposit charges and card revenue will be key issues as reports get going. Banks are also expecting lower loan growth because of the combination of tightened underwriting standards and waning demand.

JPMorgan will experience varying degrees of pain on all of these fronts, yet CreditSights analysts expect the bank to "outperform" industry expectations.

The independent debt research firm said Monday it expects JPMorgan to post sequential improvement in merger and advisory revenue, but lower equity underwriting fees and a "substantial decrease" in fixed income underwriting revenue.

"Within sales and trading, while the overall environment remained challenging, we believe that JPMorgan may stand to benefit from some of the challenges faced by its competitors," CreditSights said.

Stock Performance:

Bank stocks slumped in the second quarter as worries about the global recovery and financial reform took a bite out of gains the sector made in the early part of the year.

Based on Wednesday's closing price of $40.48 , JPMorgan shares fell 3% this year and currently trade at a 2011 forward price-to-earnings multiple of 8.2 times, according to SNL Financial.

Since hitting a 52-week high of $48.20 on April 15 -- the session after the bank reported its first-quarter results -- the stock is down 16%.

But the bank remains one of the top-rated stocks in the sector, with 22 of the 26 analysts covering the shares carrying either a strong buy or buy rating.

The median 12-month price target on the stock is $56, according to Thomson Reuters, a level that represents appreciation of more than 25% from current levels.

Management Commentary:

JPMorgan's quarterly conference call will be headed by its new CFO, Doug Braunstein, who became the finance head on June 22 as part of the broader management shuffle.

But it's possible we may hear more this time around from CEO Dimon, who has taken a backseat in recent conference calls to former CFO Mike Cavanagh (now head of the Treasury Securities business), as Braunstein is still getting his bearings.

With a final version of the financial reform package close to becoming law, investors will be looking for color from Dimon & Co. on how they think the regulatory changes will impact the bottom line. Additional clarity on JPMorgan's exposure to Europe's debt problems and the bank's outlook for the rest of the year would also be welcome.

Citing its latest 10-K filing, Barclay's Goldberg says JPMorgan's exposure to Greece, Portugal, Spain, Italy and Ireland is "modest" relative to overall risk exposures, but he's still looking to the call for more information.

"We will begin to get a taste of what regulatory reform will look like (CARD Act, Reg E) and believe company commentary here is important. We hope management's don't duck this question," Barclay's Goldberg writes.

While questions remain regarding capital levels and the ultimate impact of FinReg (now dubbed the Dodd-Frank Act), Goldberg still believes the banks' economic outlook will be the driving force behind their stock performance over the near term.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Opinion

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Trump Blinks on China Trade War That's Looking Harder to Win

Trump Blinks on China Trade War That's Looking Harder to Win

Monday Madness: GE, China, and Micron

Monday Madness: GE, China, and Micron

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly