JPMorgan Chase & Co. (NYSE:JPM) is the largest of the four 'too big to fail' money center banks. This banking giant ended 2017 with assets of $2.285 trillion, according to data from the FDIC. Any bank that controls 13.1% of the total assets in the banking system is indeed 'too big to fail.' It is also 'too big to regulate,' which is important as the banking system has not fully-recovered from the 'Great Credit Crunch.'
Analysts expect JPMorgan to earn between $2.28 and $2.31 a share when it reports its first-quarter earnings before the opening bell on Friday, April 13. CEO Jamie Dimon in his annual letter indicates that the banking behemoth can return 17% for the foreseeable future.
- JPM has 5,100 branches that serve 61 million households with plans to expand this network.
- Look for guidance on the bank's joint venture to provide employees improved healthcare, partnering with Amazon.com (NASDAQ:AMZN) and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).
- Look for an expansion of its share buyback program and perhaps raising the dividend.
- The nation's biggest bank has a history of beating earnings estimates. It has a 9-quarter winning streak.
Data from the Federal Deposit Insurance Corporation show underlying trends that will not be discussed during bank earnings guidance.
Notional Amount of Derivatives declined significantly in the fourth quarter by 9% sequentially to $173.5 trillion. This exposure is mostly among the seven largest banks including JPMorgan. This information implies that the big banks are reducing trading activities, which have been a recent drag on bank earnings.
Deposit Insurance Fund represents the dollars assessed by the FDIC to protect insured deposits. The larger the bank the bigger the annual assessments! The fourth-quarter DIF balance was $92.7 billion up from $90.5 billion in the third quarter.
Insured Deposits rose to $7.151 trillion in the fourth quarter and is up 66.6% since the end of 2007, as savers seek the FDIC deposit insurance guarantee of $250,000.
By the end of September 2020, the Deposit Insurance Fund is mandated to total 1.35% of insured deposits. The current level rose to 1.30%, but the size of insured deposits continues to rise too. If this ratio is not reached by the end of 2018, the largest banks will be assessed in 2019 to close the gap. This would hit JPMorgan more than any other bank.
Reserves for Losses increased to $123.7 billion in the fourth quarter, which is still 21.7% above the level shown at the end of 2007. This shows that there are residual issues in the banking system that go back to the 'Great Credit Crunch.' Adding to this stress is the fact that Noncurrent Loans began to rise again in the fourth quarter by 1.3% sequentially to $116.4 billion, now 5.9% above the level at the end of 2007.
Shares of JPMorgan closed Monday at $110.40, up 3.2% year to date and is up 6.2% from its 2018 low of $103.98 set on Feb. 5. The stock set its all-time intraday high of $119.33 on Feb. 27 and is down 7.5% from this high. JPMorgan traded as high as $112.45 in the pre-market on Tuesday.
The daily chart for JPMorgan
JPMorgan is well above its 200-day simple moving average of $101.88, but has been below its 50-day simple moving average of $113.40 since March 22. Above the 50-day is my monthly risky level of $119.22. Below the market are semiannual and annual value levels of $98.79 and $98.79, respectively, shown as horizontal lines.
The weekly chart for JPMorgan
The weekly chart for JPMorgan ended last week negative with the stock just below its five-week modified moving average of $111.48. The stock is well above its 200-week simple moving average at $71.70, which is also the "reversion to the mean" last tested during the week of Feb. 12, 2016, when the average was $54.44. The 12 x 3 x 3 weekly slow stochastic reading declined to 53.32 last week down from 64.64 on March 29.
Given these charts and analysis, investors should buy JPMorgan on weakness to my semiannual value level of $98.79 and to sell strength to my monthly risky level of $119.22 to reduce holdings.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.