JPMorgan (NYSE:JPM) will kick off banks' earnings this week on Thursday and will be a leading indicator for the state of the US financial services. In my opinion, JPMorgan is by far the highest quality bank relative to peers in terms of loan growth, NIM stability and expansion, superior trading and wholesale divisions, disciplined cost control and accelerated share repurchases. For the year, JPMorgan stock has returned a 6% loss compared with Dow's 4% return but outperformed peers Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) that returned a 12% and 19% loss, respectively. Key aspects that I will be focusing on this earnings call are consumer banking trends and energy exposure.
On consumer banking, the US housing market has been relatively better and it seems that consumers are re-leveraging more deliberately than before. JPMorgan reported a solid loan growth figure last quarter with core loan growth of 25%. I expect this to continue, particularly in mortgages as well as continued gains in operating leverage given that JPMorgan's loan growth Is one of the strongest amongst the US banks. However, equally important to note that credit card volume remains in the high single digit as Chase moves upmarket so this segment will continue to be a small drag. Nonetheless, the overall segment remains resilient and I am quite positive on this.
Although JPMorgan does a reasonably good job in controlling credit cost, there are some signs of deterioration in select markets. When we look at JP Morgan's consumer banking NCO, it remains one of the lowest in the industry at 1.04% even when we include the 2.62% in cards. That figure is still an improvement from the 1.22% in Q1. Pockets of the country such as Miami and San Francisco have seen softer credit given the heated real estate market but those markets should have relatively low impact on the overall picture. Besides Miami and San Francisco, Houston is another market where credit is seeing softness due to the weak energy environment.
The consumer-banking arm is also committed to invest in technology and marketing to improve efficiency and expand market share. The bank is looking to cut $2.7bn in structural cost in this segment and we could see further improvement in efficiency ratio this quarter.
Exposure to energy will be another focus area. Criticized wholesale loan, which is wholesale loans with a higher potential for default, increased 45% quarter over quarter in 1Q16 with oil and gas accounting for 79% of the increase and mining accounting for another 9%. Investors could see JPMorgan more aggressively recognize deterioration given that the Shared National Credit exam is underway along with the CCAR submission. At the end of Q1, JP Morgan had criticized wholesale credit exposure of $21.2bn compared with $14.6bn in December. Also worth noting are those areas with indirect energy exposure such as real estate in Texas, California and Colorado that have higher sensitivity to oil and gas industry. JPMorgan's exposure to commercial real estate was $4bn as of March and could increase due to the broad market contagion.
For the full-year outlook, revenue and expense expectations should be unchanged from last year as the bank waits for higher rate environment. Expense should be around $56b while revenue will likely to match that of last year with trading revenue to be around mid-teens.
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