JPMorgan Chase (JPM) kicks off earnings season for the financial sector ahead of Thursday's opening bell, and investors will be keen to see whether a pick-up in mergers and acquisitions has offset an industry-wide drop-off in trading activity.
The nation's second-biggest bank by assets behind fellow Dow component Bank of America (BAC) has received praise for the way it has navigated the credit crisis, but new financial regulations and months of low volatility and low volume are likely to mean a decline in trading revenue -- an area that has previous helped compensate for rising loses on bad loans.
At the same time, brisk business in capital markets and an increase mergers and acquisitions should help J.P. Morgan's investment banking revenue. Its mortgage business will also be in the spotlight, as investors and analysts look for any impact from the foreclosure crisis.
Analysts, on average, expect JPMorgan to post adjusted earnings of 90 cents a share, up from 82 cents in last year's third quarter, according to data from Thomson Reuters. Revenue, however, is forecast to fall to $24.57 billion from $28.78 billion in the prior-year period.
"We are not much concerned about actual bank EPS vs. estimates," wrote Thomas Mitchell, an analyst with Miller Tabak, in a Monday note to clients. "Instead, we believe investors will remain heavily focused on trends in credit quality: If non-performing assets decline meaningfully, we believe, the stocks will continue to respond positively to the outlook for further Fed purchases of long-dated Treasury bonds."
Shares in J.P. Morgan are down 4% year-to-date, lagging the broader market by about eight percentage points. See the chart below.