Expectations for third quarter earnings results remain tepid at best, following a series of equity researchers slashing earnings and price targets for many of the key banks. Nonetheless, we are at the dawn of earnings season, and the first major bank is set to disclose results Wednesday morning before the market opens, JPMorgan Chase & Co. (NYSE: JPM).
The consensus estimate from a Thomson Reuters survey is 88 cents per share for the quarter, based on an average of 24 analysts. The dispersion is wide though, with a range between $1.12 a share, and a mere 51 cents a share. Concerns over lackluster economic growth, heightened political uncertainty, general risk aversion from investors have hampered traders throughout the quarter, and investment banking fee results are expected to be soft.
Fred Cannon, an analyst at Keefe, Bruyette & Woods commented “Generally weaker quarter-on-quarter seasonal trends were exacerbated by a lack of investor conviction, waning volatility, as well as weaker transaction volumes across a host of businesses. This should be acutely examined in the Investment Bank and Securities Services lines of Business. Banking pipelines we anticipate continue to build although closing deals remains a challenge.” Since KBW has already baked in these perceived weaknesses into their valuation, no further cuts or downgrades were announced.
With decreasing loan loss write-offs, it is quite possible to see a strong performance in the credit card, and commercial lending business units. These divisions were hammered at the height of the crisis, and if the trend continues from the second quarter results, they will likely show significant improvement. Another positive sign may come from underwriting, as corporate debt sales boomed during the third quarter and JPMorgan is known to occupy a key position in this market. Through aggressive lending actions taken in the quarter, loan balances may have increased for the first time in many quarters, though rate yields are expected to remain low given the current environment.
Following JPMorgan will be a challenge for Bank of America (NYSE: BAC) and Citigroup (NYSE: C) given the collectively difficult market. Recent analyst reports have slashed their earnings expectations and price targets – another difficult quarter will be hard to swallow. Investors will have a lot to digest in the coming weeks, and we should also have a much better view of how good, or bad the economy is really doing right now apart from macro variables.
