JPMorgan Ready to Take Wall Street Top Spot (Update 1)

Updated to reflect earnings estimates and additional analyst comments

NEW YORK ( TheStreet) - JPMorgan Chase ( JPM) is on track to score a rare Wall Street "Hat Trick" as it tops the merger advisory, equity and debt underwriting rankings.

For the nation's largest bank, taking the lead in Wall Street's key investment banking activities is yet another sign that first quarter earnings can provide a continued lift to shares after Federal Reserve stress test results, dividend increases and a 2012 stock surge help investors forget a lackluster 2011.

With a bright outlook for M&A and JPMorgan's big role in highly anticipated underwriting mandates like Facebook's initial public offering, the data may signal a turning of the corner for its investment bank after the company's Chief Executive Jamie Dimon underplayed the unit's importance in a fourth quarter earnings call.

Preliminary first quarter data shows that JPMorgan led all banks in M&A advisory, equity underwriting and debt issuance volumes in the first quarter, making it the only Wall Street banking unit likely to earn over $1 billion in fee revenue, according to Dealogic. The data shows that after beating out competitors like Goldman Sachs ( GS) and Morgan Stanley ( MS) for the underwriting top spots, JPMorgan is expected to capture roughly 8% of overall investment banking revenues, with nearly 50% of its earnings coming from a booming debt underwriting business.

After urging investors to focus on the bank's Main Street businesses in fourth quarter earnings, Jamie Dimon may sound like more of a Wall Street bull this quarter, even as overall investment banking activity continues to track lower. In a fourth quarter earnings call, Dimon urged the media to "forget trading" and instead focus on the bank's mortgage and business loan growth. "There's no part of the investment bank that is naturally stable," said Dimon in January. "It's not a mystical thing - it will come back. I don't think that the lower numbers are permanent. When things come back it will boom again. And it won't be because we're geniuses. It will be because we stayed in the game."

If Wall Street is set to boom again, staying in the game won't just benefit JPMorgan, as an investment banking performance gap widens. In 2012, analysts have been gradually boosting the earnings estimates for Goldman Sachs, Morgan Stanley, Citigroup ( C) and Bank of America ( BAC) who all have large capital markets businesses. Those upgrades, in addition to stronger than expected March dividend and buyback announcements after the Fed's stress tests added fuel to a 2012 bank sector rally.

JPMorgan shares are up over 35% in 2012 to $45.99, while peers like Goldman Sachs, Morgan Stanley and Citigroup post similar sized gains. The top financial performer on the Down Jones Industrial Average, Bank of America's near 80% gain has nearly quadrupled the KBW Bank Index's ( KBW) 20% gain and put shares near $10.

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Morgan Stanley bank analyst Betsy Graseck noted that a quarter-over-quarter surge in investment banking activity has been a key to earnings upgrades for many large banks, even as Wall Street activity tracks below 2010 levels. On March 18, Graseck cited stronger investment banking fee and complimentary trading revenues as the primary drive of a boost to JPMorgan's first quarter earnings per share estimates to $1.22.

Still, don't expect Dimon to come out saying "forget Main Street." Graseck notes that JPMorgan is likely to see continued loan growth as it steals mortgage origination market share from Bank of America.

JPMorgan is expected to earn $1.11 per share when it reports first quarter earnings on April 13, according to consensus estimates compiled by Zacks. Overall, analysts expect JPMorgan to earn a profit of $4.3 billion on revenue of $24.3 billion in the quarter, according to Bloomberg data, reflecting a fall in 2012 profits compared with the prior year.

In 2011, JPMorgan nearly took the market share lead in M&A advisory volume until a $39 billion merger between AT&T ( T) and T-Mobile USA that it advised on was iced by antitrust regulators in December.

The deal breakup added to a gloomy quarter for JPMorgan's investment banking unit, which turned a $726 million 2011 profit on $4.36 billion in revenue. Nevertheless, those earnings reflected a 25% and 45% slowdown in debt and equity trading revenue, respectively.

Watch for trading to pick up again on Wall Street in the first quarter, with JPMorgan, Bank of America, Goldman Sachs and Citigroup all expected to post 20%-plus revenue increases, according to Graseck of Morgan Stanley. In fixed income trading, Goldman Sachs is expected to see trading revenue increase over 100% from the fourth quarter. "GS is the high water mark with Q/Q FICC up an estimated 124%," notes Graseck.

Graseck expects a drop in investment banking fees of 10% and 3%, for the first quarter and 2012, respectively as Wall Street struggles to recover from a second half slowdown. Dealogic data confirms the notion. All of the five largest investment banks are tracking at over 30% declines in first quarter revenue when compared with 2010. Only RBC Capital Markets ( RBC) and HSBC ( HBC) are expected to show year-over-year investment banking revenue increases. Share price gains at investment banks like Morgan Stanley result from an investor switch to a glass half full mentality from sector-wide pessimism in late 2011, said Credit Suisse analyst Howard Chen in a recent note.

Earlier in March, JPMorgan led a spree of banking sector dividend and buyback increases, bumping up its its quarterly dividend to 30 cents per share from 25 cents. It also authorized a new share repurchase program of $15 billion. JPMorgan spent nearly $9 billion repurchasing shares in 2011, but the strategy didn't lift its shares, forcing CEO Dimon to apologize for his timing by year-end.

Dimon stressed that the bank will buyback shares "only when we are generating capital in excess of what we need to fund our organic growth and when we think it provides excellent value to our existing shareholders." Still, in a February letter to Berkshire Hathaway ( BRK.A) shareholders, Warren Buffett praised Dimon's priority on investing in growing JPMorgan over buybacks.

After JPMorgan's poor timing on 2011 buybacks, analysts are more optimistic about the banks 2012 moves. "We believe JPM's strong capital position and management approach should allow the bank to increase dividends and capture market share as management continues to invest in expanding the franchise," wrote Guggenheim Partners analyst Marty Mosby in a Mar. 21 note upgrading JPMorgan's price target to $53 from $51.

Overall, analysts polled by Bloomberg give JPMorgan shares a price target of $49.04, with 34 "buy" ratings to go with 5 "holds." Goldman Sachs and Morgan Stanley shares warrant price targets of $134.05 and $22.14, respectively.

For more on bank investments, see why Warren Buffett is resting as John Paulson digs in and what the investment guru knows about bank investing that you don't. See potential ratings downgrades for more on post-stress test risks and why corporate cash isn't driving record deals.

--Written by Antoine Gara in New York

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