- Analysts are expecting lower earnings for the world's biggest banks.
- Legal troubles thought to be behind JP Morgan are not entirely behind it.
- If China falls, trouble follows.
JP Morgan Earnings Out On 14 Jan
JP Morgan earnings are due to be reported on January 14 and investors are hungry for good news, while expecting bad news. Since the last time JP Morgan earnings were announced, in September, the shares are down about 5%. JP Morgan Chase (NYSE:JPM) September numbers were not bad – net income of $6.8 billion, $1.68 per share, covered the 44 cent dividend almost four times. But general market fears about the global economy mean people just aren’t paying much for those earnings. JP Morgan's Price/Earnings multiple, based on the last year’s numbers, is down to 10.44, and the company’s big bank peers are doing a little better, with long-time pace-setter Wells Fargo (NYSE:WFC) selling at just 12 times earnings.
So what’s the problem? Again, due to all the troubles in the world, investors just aren’t expecting good news. The whisper number on JP Morgan's latest quarter numbers, due out on Thursday the 14th, is for earnings of $1.33/share, almost 20% below the mark set in the previous quarter, and revenue of $23 billion, down from $23.5 billion in the previous quarter.
The big concern remains China. Nearly $1 trillion in capital has left China since the second quarter of 2015, the bank notes, which could mean a “hard landing” for the world’s second largest economy, not the gradual slowdown people have been expecting. JP Morgan’s exposure to China has analysts taking their estimates for the bank down, preferring the safety of Wells Fargo, whose operations are more oriented toward the U.S.
JP Morgan Earnings - Beyond The Initial Troubles
Adding to the nervousness is the fact that, while most had thought that JP Morgan’s legal troubles were behind it, it was fined another $48 million over its handling of foreclosures during the 2008 financial crisis, and another $4 million for misleading customers on how brokers at its private bank were compensated.
The latest mortgage department fine is based on a finding by regulators that JP Morgan’s practices have not changed as promised. Morgan’s response includes promoting a new head of mortgage servicing who had only been with the bank since 2013, in December.
This is not the kind of news investors expect to hear from the “world’s greatest banker,” CEO Jamie Dimon, who celebrated his 10th anniversary at the top recently.
Summing Up Expectations Around The JP Morgan Earnings Release
So far, in the last twelve months, JP Morgan stock has been rather flat. JP Morgan shares a year ago were perched at $58.83, and believe it or not, the shares are exactly where they were, to the second decimal.
What it adds up to is a bank that could, with an upside surprise in Thursday’s report, put the past behind it and quickly rise to $70/share from the present $58 but also could, if it disappoints, fall a little further. To me the risk-reward on that favors reward. But we will know the answer to that soon.