JPMorgan (JPM) stock was down 22.29% in the 2nd quarter, underperforming an already difficult tape for financials thanks to the bad hedge (i.e. the London Whale loan) and is now looking to put that behind it as we enter the 2nd half of 2012.
When JPM reports Friday morning, July 13th, before the bell, consensus analyst expectations for JPM are currently looking for $0.79 in eps and $21.906 billion in revenue for year-over-year declines of 38% and 20% respectively. In last year's q2, JPM printed $1.27 in eps and $27.41 billion in revenue.
Exiting the first quarter and with q1 '12 earnings, the original q2 '12 estimates for earnings per share and net revenue were $1.22 and $24.6 billion in revenue, so the reader can quantify the impact of the London Whale issue on the key metrics.
Forward 4-quarter eps for JPM has declined from over $5 as of the April earnings release to just $3.67 currently, which leaves JPM trading at 9(x) forward earnings today.
There seems to be continued rumor and innuendo about the size of the loss and whether JPM will take another hit to earnings (per a note out of Guggenheim this is thought to be a non-operating loss and is about earnings volatility, not bank capital, but the bank has still suspended the share repurchase plan anyway) but Jamie Dimon's early June testimony before Congress seemed to address that issue adequately.
Currently at $33 per share, JPM is trading near (or at a slight discount to ) tangible book level of $35, which is inline with other major banks and brokers.
JP Morgan's three big segments are Investment Banking, Retail Financial Services and Card Services, each of which represents about 30% of JPM's combined operating profits. Card Services is only 17 - 18% of revenue but has been contributing 25% - 30% of total profits the last few years, thanks mainly to lower credit costs (lower loan loss provisions) and gradually improving credit. Card Service is thus the only bank segment generating any operating leverage. The Investment Banking group is 28% - 30% of revenue and profits, but the bank can only leverage that revenue if capital markets would improve. That is where JPM's ultimate earnings power comes from, and like the other brokers, the bank is flat on its back from that perspective, until the markets are in sustained recovery.
To conclude, JPM continues to trade like Goldman Sachs and the other brokers for good reason, and the London Whale event put a dent in the non-capital market heart of the bank's activities, not to mention the bullet-proof reputation of Jamie Dimon. Still, trading below tangible book, and with the ability to leverage its 3 main business segments, patient investors will be rewarded.
We'd like to hear that the share repurchase program will be reinstated for JPM by year-end.