JPMorgan preview updated from Monday with latest news of management shuffle in 21st paragraph.

NEW YORK ( TheStreet) -- Did the fourth quarter of 2011 prove to be as messy and disappointing for banks as the previous quarter? We will know when JPMorgan Chase ( JPM) officially kicks off the bank earnings season on Friday.

Expectations for the fourth quarter earnings season for the big banks are low, given that the weakness in capital markets activity has been well telegraphed.

Consensus expects the nation's biggest bank by assets to report an earnings per share of 91 cents on revenue of $22.99 billion, according to Thomson Reuters. That is down from an earnings per share of $1.02 on revenues of $24.36 billion in the previous quarter and is lower still from a profit of $1.13 per share on revenue of $26.7 billion recorded in the fourth quarter of 2010.

Analysts have also factored in the tightening of spreads on banks' debt in the fourth quarter, which would likely result in debit-valuation losses. This is important because banks reported hefty accounting gains in the third quarter as spreads widened, a result of increasing concerns about their exposure to the euro zone.

JPMorgan reported a $1.9 billion debit-valuation adjustment gain, so a loss this time would skew the quarter-to-quarter comparisons at first glance.

Concerns that the volatility in capital markets might persist has weighed on JPMorgan, even though the bank boasts a "battleship balance sheet" and has delivered above-average profitability through the crisis. Trading and investment banking contributed about 25% of revenues and about 40% of the profits for JPMorgan in 2010, so the fears are understandable.

Still, bulls tout the bank's well diversified business model and strong capital position as an advantage in a weak operating environment.

Morgan Stanley analysts on Monday highlighted JPMorgan as a top pick in any scenario. The stock "benefits as much as cheaper names in a bull outcome and its share gains and higher efficiency make it defensive in a bear outcome," the analysts wrote in a report.

Analysts will be looking for some positive indicators such as stronger mortgage origination revenue, continuing credit quality improvements, share gains in investment banking and greater expense-control as signs that the bank will be able to sustain its outperformance in a weak-growth environment.

One potential positive surprise in the earnings report could come from a significant loan loss reserve release, according to Stifel Nicolaus analyst Chris Mutascio. JPMorgan has shown caution more recently in releasing reserves, with delinquency trends in consumer-related loan portfolios stabilizing rather than continuing to show improvement.

Still, with a reserve-to-loan ratio in excess of 4.0% at the end of the third quarter of 2011, the analyst believes that the management may have shown "an abundance of caution" last quarter.

Sandler O' Neill analyst Jeff Harte expects the bank to under-provide by $253 million versus $96 million in the previous quarter. But despite the reserve release, the bank will still have an ample reserve-to-loans coverage ratio of 4.3%, according to the analyst.

Looking forward, the market will also be hoping for more upbeat commentary from CEO Jamie Dimon, who always manages to strike a confident tone even though the headwinds for bank earnings just keep swirling higher.

Capital deployment plans has become the top theme for bank investors in 2012 and JPMorgan's management is bound to face questions on their plans, though they are unlikely to elaborate on them while the Fed's approval us still pending.

The bank is considered well placed to increase dividends/buybacks in 2012 even as it strives to build a Basel III Tier 1 Capital of close to 9% by the end of the year.

JPMorgan Chief Jamie Dimon told CNBC on Monday that he expects the bank to comfortably pass the Fed's annual stress test and would likely report a Base 1 Tier 1 Capital of 7% to 8% even after modeling for losses in an extremely harsh economic scenario.

He also said that buybacks and dividend increases remain a board decision and that the bank will not buy back stock at any price. "Buying back stock makes sense when you are buying below intrinsic value. If you are buying above intrinsic value you are only benefiting exiting shareholder," he said, adding that he believes the bank's stock is cheap.

Deutsche Bank analyst Matt O'Connor expects JPMorgan's capital deployment will be the highest in 2012 because "capital remains strong" and is "building quickly." "We believe dividend increases could push yields closer to 4% in 2012 (vs. about 2% on average for banks) and additional buybacks should be meaningful (with a 2% decline in shares possible)," the analyst wrote in his outlook.

The other opportunity for JPMorgan in 2012 lies in Europe, as troubled banks in the region shrink their balance sheet by selling assets and pulling out of certain markets. JPMorgan has the flexibility in its capital to pick up assets. It will also be able to gain share "as Europe stress is driving consolidation around strong capital market players," according to Morgan Stanley analysts.

Dimon told CNBC Monday that the bank will scout for opportunities in Europe in areas such as trade finance. More generally on acquisitions, Dimon told CNBC that the bank will stay focused on "organic growth". Making acquisitions and growing bigger will likely be a "political issue" that may not be worth the risk, he said.

Separately, on Thursday, JPMorgan announced a shuffle in its management ranks. Doug Petno will assume the role of CEO of Commercial Banking, taking over from Todd Maclin who will focus on the Consumer and Business Banking franchise.

The bank appointed John Hogan as Chief Risk Officer for the entire company. Hogan had been overseeing risk management at the investment banking division. Barry Zubrow will move on to head corporate and regulatory affairs.

Jay Mandelbaum, head of Strategy and Business Development, would leave the bank after a long stint to pursue other interests but will stay on as an advisor to the company.

Overall, while expectations for the fourth quarter have been low, earnings forecasts for 2012 remain rosy. The six largest lenders, including JPMorgan, Bank of America ( BAC) and Citigroup ( C) may post an average profit increase of 57 percent this year, according to 184 analysts' estimates compiled by Bloomberg.

So while investors may be willing to give a forgettable fourth quarter a pass, the case for banks might be tested only when they report their first quarter results, traditionally a strong one for universal banks.

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

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