On Friday October 12th, JPMorgan Chase (NYSE:JPM) released its third quarter earnings report. And while the JPMorgan Chase earnings report this time around did not move the whole market as the last earnings report did as it came in the wake of the "London Whale" debacle, it was nevertheless scrutinized carefully by Wall Street as it was the first investment bank (and ranked #1 over the past nine months when it comes to investment banking fees) to report earnings (plus it has a commercial banking arm) and shares in the bank could tick a few percentage points upward or downward in upcoming weeks.
The Numbers Wall Street Expected from JPMorgan Chase
According to the recent summary of analyst estimates from Yahoo Finance, the Wall Street consensus expected JPMorgan Chase to report flat revenue of $24.37 billion along with an EPS of $1.21 vs. $1.02 for the same period last year. The current EPS consensus estimate of $1.21 is up from the $1.04 consensus number three months ago.
For the year, the Wall Street consensus for JPMorgan Chase calls for a 2.10% revenue decline to $97.71 billion while EPS is expected to decline from $4.48 to $4.76; and for next year, the Wall Street consensus expected a 2.6% revenue rise to $100.26 billion along with an EPS rise from $4.76 to $5.20. However, investors need to keep in mind that these JPMorgan Chase estimates for revenue and earnings could still make big moves in either direction in the near future.
In addition, investors should keep in mind that bank stocks like Wells Fargo (NYSE:WFC) also reported earnings on October 12th, Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) both reported earnings on Monday October 15th, Goldman Sachs (NYSE:GS) reported earnings, today, Tuesday October 16th and both U.S. Bancorp (NYSE:USB) and Bank of America (NYSE:BAC) will both report earnings on Wednesday October 17th.
What JPMorgan Chase Reported Last Earnings Season
The last time JPMorgan Chase reported earnings, it crushed expectations despite the fact that revenue fell 16% to $22.89 billion and net income came in at $4.96 billion ($1.21 per share) vs. $5.43 billion ($1.27 per share) a year ago (Wall Street was expecting earnings of just 73 cents).
JPMorgan Chase also reported that the "London Whale's" botched trades created $4.4 billion worth of losses but investors should remember that those losses were counteracted by "window dressing" so to speak as profitable positions were sold to make up for it along with a few accounting tricks to make everything appear more rosy (Otherwise, net income would have been reduced to around $2.9 billion). Some of the accounting tricks apparently included placing $500 million of the trading loss back into first quarter earnings and reducing litigation expenses to just $300 million (in contrast and for the same period last year, profit was reduced by $1.9 billion for litigation related expenses). Management had also tried to carefully manage Wall Street expectations up until the final numbers were reported (plus fend of a hostile media while keeping government regulators and Congress as bay).
What You Need to Look For
This time around, the London Whale fiasco will be behind JPMorgan Chase but there are be some additional disclosure of losses and further window dressing. However, with that said, one still has to question whether all of the derivative positions and trades in JPMorgan Chase's portfolio have been accurately recorded and what other surprises are lurking out there. There will no doubt be questions during any earnings conference call Q&A about what new risk controls the bank has put in place to ensure such a fiasco never happens again plus the various government inquiries into the matter are far from over.
With that in mind, it should be noted that while Jamie Dimon remains as JPMorgan Chase's CEO, a few heads at the center of the debacle have rolled or will leave as part of a management reshuffle. In addition, the bank has promoted a number of younger executives into key positions.
It should also be noted that on July 19th and 20th, Dimon purchased a total of 360,000 shares of JPMorgan Chase at the $34 level and he has made money on those purchases as it appears the stock had bottomed out in June at $31 after hitting a high of $46 in early April and it's entering earnings week approaching the $42 level. Since there is usually only one reason for an insider to buy stock in tthe heir company (they think the share price will rise), it's probably safe to assume that any negative surprises known by insiders are going to be enough to drag shares down as much as what happened after the London Whale debacle.
Otherwise, investors should be aware that on October 1st, Eric Schneiderman, the co-chair of the mortgage unit and the New York attorney-general, charged JPMorgan Chase with alleged multiple fraudulent and deceptive acts tied to the sale of mortgage-backed securities. However, as the Economist recently pointed out, all of the alleged crimes were committed by Bear Stearns which JPMorgan Chase was forced to acquire by the government over a weekend at the height of the financial crisis. Moreover, the lawsuit filing was completely sloppy and its timing right before the presidential debates and the elections has also been questioned.
Nevertheless, with the economy remaining in poor shape, the government is clearly on the prowl to blame someone for the country's problems and the London Whale episode along with the housing crisis does make investment banks like JPMorgan Chase a convenient scapegoat.
A Final Word About the Coming JPMorgan Chase Earnings Report
The last time JPMorgan Chase reported earnings, shares surged around 6% and it sparked a one day rally on Wall Street - mostly because what was reported after the London Whale debacle was not as bad as what had been feared by some analysts. Hence, investors should not expect such a repeat performance this time around but one should pay attention to what JPMorgan Chase has to report as the stock could move a few points upward in the coming weeks. The impact of the report, released last week, will be seen soon.