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Equity Trading, IB, Loans to Aid JPMorgan's (JPM) Q4 Earnings
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After witnessing robust client activities and market volatility over the past quarters, market normalization and reduced volatility (compared with the prior-year period) in the fourth quarter of 2021 are expected to have somewhat dampened JPMorgan’s (JPM - Free Report) trading business. Markets revenues, which constitute nearly 20% of the company’s total revenues, are likely to adversely impact its results, slated to be announced on Jan 14, before market open.
Similar to the past quarters, major indexes – the S&P 500, Dow Jones and Nasdaq – witnessed an upswing during the fourth quarter, with all three touching new highs. Also, concerns over accelerating coronavirus infections across the globe, steady rise in inflation, fading fiscal stimulus and the Federal Reserve’s hawkish monetary stance weighed on investor sentiments. These factors resulted in a heightened level of equity market volatility during the fourth quarter. On the other hand, bond trading remained decent in the June-September quarter.
The Zacks Consensus Estimate for equity markets revenues of $2.18 billion suggests a jump of 9.4% from the prior-year reported number. The consensus estimate for fixed income trading revenues of $3.31 billion indicates a fall of 16.1%.
Other Key Factors to Influence Q4 Results
Investment Banking (IB) Fees: Similar to the last several quarters, the fourth quarter witnessed a rapid pace of deal-making across the globe. Resumption of normal business activities, excess cash levels, companies’ appetite for strengthening scale and market share and solid economic recovery drove the upswing in M&A numbers. Both the deal volume and total value witnessed drastic improvement. Thus, JPMorgan’s leadership in the space, along with favorable factors, is likely to have resulted in improvement in advisory fees.
Continued momentum in the IPO market and a steady rise in follow-up equity issuances are likely to have offered support to equity underwriting fees in the to-be-reported quarter. Bond issuance volume remained decent. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have recorded solid growth.
The Zacks Consensus Estimate for IB fees of $3.2 billion indicates a 24% increase from the prior-year reported number.
Loans & Net Interest Income (NII): Lending activities continued to improve in the to-be-reported quarter. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans accelerated in October and November. Yet, high levels of pay downs and payoffs and stiff loan pricing competition are likely to have hurt JPMorgan’s loan volumes. This, along with persistently low interest rate environment, is expected to have an adverse impact on its NII and net interest yield in the quarter.
The Zacks Consensus Estimate for NII of $13.4 billion suggests a 1.3% rise on a year-over-year basis.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to normalize during the fourth quarter. The origination boom in 2020 propelled by the ultra-low rates is also making comparison difficult for the quarter. Further, mortgage rates rose during the quarter under review. This resulted in drastic fall in mortgage origination activities, with steadily rising rates hurting refinancing. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $549 million suggests a plunge of 28.4% from the prior-year reported number.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses during the fourth quarter. Investment in technology to strengthen digital offerings might also have led to a rise in costs in the to-be-reported quarter.
In December, JPMorgan agreed to pay $200 million as a fine to the U.S. regulators – the Securities and Exchange Commission and the Commodity Futures Trading Commission. The company has been accused of “widespread and longstanding failures” to preserve employee communications on personal mobile devices, messaging apps and e-mails.
Asset Quality: Continuing with the trend of the last five quarters and driven by improving macroeconomic backdrop and stable credit market conditions, JPMorgan is likely to have released reserves that it had taken to cover losses from the effects of the coronavirus pandemic. This is expected to have supported the company’s earnings in the to-be-reported quarter.
The consensus estimate for non-performing assets is pegged at $8.74 billion, which indicates a 19.8% decline from the prior-year quarter. The consensus estimate for non-performing loans of $8.18 billion suggests a 22.7% fall.
Full-Year 2021 Management Outlook
NII is projected to be $52.5 billion, down almost 4% from the 2020 level.
Adjusted operating expenses are projected to be approximately $71 billion. The year-over-year rise is largely due to “revenue and volume-related expenses” and the impact of foreign exchange as well as expenses related to the strategic acquisitions.
Card net charge-offs are projected to be nearly 2%, down from prior target of less than 2.5%.
What the Zacks Model Unveils
Our proven model does not predict an earnings beat for JPMorgan this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -1.75%.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.7% upward to $3.01 over the past seven days. The estimated figure indicates a decline of 20.6% from the year-ago reported number. The consensus estimate for sales of $30.06 billion suggests a 2.9% year-over-year rise.
Banks to Consider
Here are few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for First Republic Bank is +2.11% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full-year 2021 results on Jan 14.
Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved 2.1% upward.
PNC’s quarterly earnings estimates have moved marginally lower over the past month.
Commerce Bancshares (CBSH - Free Report) is slated to announce fourth-quarter and full-year 2021 results on Jan 19. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +2.11%.
CBSH’s earnings estimates for the to-be-reported quarter have moved 3.3% north over the 30 days.
Image: Bigstock
Equity Trading, IB, Loans to Aid JPMorgan's (JPM) Q4 Earnings
After witnessing robust client activities and market volatility over the past quarters, market normalization and reduced volatility (compared with the prior-year period) in the fourth quarter of 2021 are expected to have somewhat dampened JPMorgan’s (JPM - Free Report) trading business. Markets revenues, which constitute nearly 20% of the company’s total revenues, are likely to adversely impact its results, slated to be announced on Jan 14, before market open.
Similar to the past quarters, major indexes – the S&P 500, Dow Jones and Nasdaq – witnessed an upswing during the fourth quarter, with all three touching new highs. Also, concerns over accelerating coronavirus infections across the globe, steady rise in inflation, fading fiscal stimulus and the Federal Reserve’s hawkish monetary stance weighed on investor sentiments. These factors resulted in a heightened level of equity market volatility during the fourth quarter. On the other hand, bond trading remained decent in the June-September quarter.
The Zacks Consensus Estimate for equity markets revenues of $2.18 billion suggests a jump of 9.4% from the prior-year reported number. The consensus estimate for fixed income trading revenues of $3.31 billion indicates a fall of 16.1%.
Other Key Factors to Influence Q4 Results
Investment Banking (IB) Fees: Similar to the last several quarters, the fourth quarter witnessed a rapid pace of deal-making across the globe. Resumption of normal business activities, excess cash levels, companies’ appetite for strengthening scale and market share and solid economic recovery drove the upswing in M&A numbers. Both the deal volume and total value witnessed drastic improvement. Thus, JPMorgan’s leadership in the space, along with favorable factors, is likely to have resulted in improvement in advisory fees.
Continued momentum in the IPO market and a steady rise in follow-up equity issuances are likely to have offered support to equity underwriting fees in the to-be-reported quarter. Bond issuance volume remained decent. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have recorded solid growth.
The Zacks Consensus Estimate for IB fees of $3.2 billion indicates a 24% increase from the prior-year reported number.
Loans & Net Interest Income (NII): Lending activities continued to improve in the to-be-reported quarter. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans accelerated in October and November. Yet, high levels of pay downs and payoffs and stiff loan pricing competition are likely to have hurt JPMorgan’s loan volumes. This, along with persistently low interest rate environment, is expected to have an adverse impact on its NII and net interest yield in the quarter.
The Zacks Consensus Estimate for NII of $13.4 billion suggests a 1.3% rise on a year-over-year basis.
Mortgage Banking Fees: Mortgage originations, both purchase and refinancing, continued to normalize during the fourth quarter. The origination boom in 2020 propelled by the ultra-low rates is also making comparison difficult for the quarter. Further, mortgage rates rose during the quarter under review. This resulted in drastic fall in mortgage origination activities, with steadily rising rates hurting refinancing. These factors are likely to have weighed on JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $549 million suggests a plunge of 28.4% from the prior-year reported number.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses during the fourth quarter. Investment in technology to strengthen digital offerings might also have led to a rise in costs in the to-be-reported quarter.
In December, JPMorgan agreed to pay $200 million as a fine to the U.S. regulators – the Securities and Exchange Commission and the Commodity Futures Trading Commission. The company has been accused of “widespread and longstanding failures” to preserve employee communications on personal mobile devices, messaging apps and e-mails.
Asset Quality: Continuing with the trend of the last five quarters and driven by improving macroeconomic backdrop and stable credit market conditions, JPMorgan is likely to have released reserves that it had taken to cover losses from the effects of the coronavirus pandemic. This is expected to have supported the company’s earnings in the to-be-reported quarter.
The consensus estimate for non-performing assets is pegged at $8.74 billion, which indicates a 19.8% decline from the prior-year quarter. The consensus estimate for non-performing loans of $8.18 billion suggests a 22.7% fall.
Full-Year 2021 Management Outlook
NII is projected to be $52.5 billion, down almost 4% from the 2020 level.
Adjusted operating expenses are projected to be approximately $71 billion. The year-over-year rise is largely due to “revenue and volume-related expenses” and the impact of foreign exchange as well as expenses related to the strategic acquisitions.
Card net charge-offs are projected to be nearly 2%, down from prior target of less than 2.5%.
What the Zacks Model Unveils
Our proven model does not predict an earnings beat for JPMorgan this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -1.75%.
Zacks Rank: It currently carries a Zacks Rank #3.
JPMorgan Chase & Co. Price and EPS Surprise
JPMorgan Chase & Co. price-eps-surprise | JPMorgan Chase & Co. Quote
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.7% upward to $3.01 over the past seven days. The estimated figure indicates a decline of 20.6% from the year-ago reported number. The consensus estimate for sales of $30.06 billion suggests a 2.9% year-over-year rise.
Banks to Consider
Here are few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for First Republic Bank is +2.11% and it carries a Zacks Rank #3, at present. The company is slated to report fourth-quarter and full-year 2021 results on Jan 14.
Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved 2.1% upward.
The PNC Financial Services Group, Inc. (PNC - Free Report) is scheduled to release fourth-quarter and full-year 2021 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +3.15%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC’s quarterly earnings estimates have moved marginally lower over the past month.
Commerce Bancshares (CBSH - Free Report) is slated to announce fourth-quarter and full-year 2021 results on Jan 19. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +2.11%.
CBSH’s earnings estimates for the to-be-reported quarter have moved 3.3% north over the 30 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.