Wednesday, April 7, 2010

JPMorgan Chase & Co. (NYSE:JPM): Q1 Earnings Preview 2010

JPMorgan Chase & Co., the second-largest US bank, is scheduled to release Q12010 earnings before the opening bell on Wednesday, April 14, 2010. Analysts, on average, expect the company to report earnings of $0.65 per share in the first quarter with estimates ranging from a low of $0.40 to a high of $0.74. Revenues for the quarter are estimated to be $26.58 billion. In the Q12009, JPMorgan Chase reported earnings of $0.40 per share on revenue of $26.92 billion.

JPMorgan has emerged as one of the strongest U.S. banks from the worst financial crisis in decades, thanks to its "fortress balance sheet." Led by CEO Jamie Dimon, the massive financial services company never posted a quarterly loss during the downturn.It operates in six segments: Investment Bank, Commercial Banking, Treasury & Securities Services, Asset Management, Retail Financial Services, and Card Services. Investment Bank segment provides investment banking products and services, including advising on corporate strategy and structure, capital raising in equity and debt markets, risk management, market-making in cash securities and derivative instruments, and prime brokerage and research.

In the preceding Q42009, the New York-based financial services giant reported that its net income surged to $3.28 billion or $0.74 per share, compared with $702 million or $0.06 per share, in the prior-year quarter. On a reported basis, JPMorgan's total quarterly net revenues were $23.16 billion, up 34% from $17.23 billion in the prior-year quarter. On a managed basis, total net revenues rose 32% to $25.24 billion from $19.11 billion in the previous year. Analysts, on average, expected the company to report earnings of $0.61 per share on revenue of $26.80 billion.

In an investor day presentation in February, Mike Cavanagh, Chief Financial Officer, noted that the company projects to increase its net income to $22 billion to $24 billion from fiscal 2009 net income of $11.7 billion. The projection is based on performance target and steady state assumptions, and most of the earnings growth are projected to be from Investment Banking , or IB, and Retail Financial Services, or RFS segments. Earnings growth is expected to result in significant capital generation, and excess capital provides flexibility for dividend increases, share buybacks, new investments & acquisitions, the company noted.

The company said it is positioned well for any environment, but execution against key challenges will be critical. The challenges it face include continued high levels of credit costs in 2010, economic conditions including high levels of uncertainty, legislative and regulatory changes for financial services, heightened competition from domestic and foreign banks and non-banks, as well as delivering against and beyond growth plans.

In his annual letter to shareholders released recently, CEO Jamie Dimon said the New York-based bank expects a $500 million to $750 million hit from the credit card reforms that took effect Feb. 22 prohibiting what he referred to as "certain practices that were not considered consumer-friendly."

JP Morgan edged out its closest Wall Street rival Goldman Sachs to the top of the equity capital markets rankings for the first quarter, with about $1.14 billion in revenue and a 7.8 percent market share, according to Dealogic’s data.

The financial firm has also reclaimed its throne as the largest hedge fund manager in the U.S. as the biggest hedge funds in the country nearly doubled their assets in 2009. JPMorgan Chase—which includes Highbridge Capital Management—now manages $50.4 billion, more than 50% more than at the beginning of last year, according to the biannual AR Billion Dollar Club survey.

Industry experts expect JP Morgan to be the first big firm to restore higher payouts to investors. CEO Jamie Dimon said in his annual letter to shareholders that the bank would like to boost its annual payout to a range of 75 cents to $1 from the current 20 cents.

In terms of stock performance, JP Morgan shares have gained nearly 25 percent since the beginning of the year.

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