JPMorgan Likely to Focus on Cost Cutting Next Week

NEW YORK (TheStreet) -- JPMorgan Chase (JPM) will hold its annual Investor Day meeting next Tuesday, and in addition to the usual upbeat tone from CEO James Dimon and other executives, analysts expect a focus on cost-cutting.

It's been a rough two years for the bank, including the "London Whale" hedge trading debacle during 2012, and $17.5 billion in residential mortgage-backed securities settlements during the fourth quarter, followed by a deferred prosecution agreement with the Department of Justice over JPMorgan's role in the Bernard Madoff Ponzi scheme. That last item was announced in January, but lowered the company's fourth-quarter earnings.

Looking ahead, JPMorgan's outlook for 2014 and 2015 could include an expected return on tangible common equity (ROTCE) in a range of 14 to 14.5%, down from management's previous outlook of a 16% return on equity, according to Evercore analyst Andrew Marquardt.

That may be a tough pill for investors to swallow, but the company's fully loaded Basel III Tier 1 common equity ratio target is a range of 10.0% to 10.5%, which it expects to reach by the end of 2015. The estimated Basel III Tier 1 common ratio was 9.5% as of Dec. 30.

One way JPMorgan could counter the effect of the higher level of regulatory capital would be to lower its risk-weighted assets (RWA). Marquardt in a note to clients on Wednesday estimated JPMorgan would need to lower its risk-weighted assets by $143 billion to maintain a 16% ROTCE, "all else equal."

The bank's ROTCE during 2013 was 11%, declining from 15% in 2012.

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