Ever since JPMorgan, the largest U.S. bank by assets, revealed a trade gone bad in London that caused billions of dollars in losses, shares have waned and industry forecasters have grown more bearish on shares.
The consensus estimate heading into Friday's release has dropped over the last three months to 79 cents a share from 91 cents.
Those mean estimates would be a 36.2% drop in earnings from the same period a year ago, when JPMorgan turned in an impressive $1.27 a share amid a struggling U.S. economy. Revenue is predicted to stumble 20% year-over-year to $21.93 billion for the second quarter, coming in at $96.58 billion for the year.
Investors and regulators will be most interested Friday in the bank's update on the full extent of the trading losses incurred in what has now been dubbed the "London whale trade." The losses are predicted to be sustainably larger than previously reported, now somewhere in the range of $4 billion to $6 billion.
How Will JPMorgan (NYSE: JPM) Escape this Mess?Investors will want to hear what JPMorgan has done to offset those losses and how those maneuvers reflect not just in quantity, but in the quality of earnings.
Reports surfaced Wednesday that in a way to recoup some of its losses, the bank plans to reclaim millions of dollars from those executives at the center of the multi-billion dollar trading gaffe. The announcement could come Friday along with the earnings release.
The move could also be a way to deflect additional regulatory scrutiny.
No word if CEO Jamie Dimon's cushy pay package will be touched. In fact, the CEO has remained virtually unscathed amidst all the uproar, to the chagrin of many.
The attention surrounding the losses won't be totally to blame if earnings disappoint; JPMorgan was posting lackluster performance even before the London debacle.
For the last three quarters, the banking giant has posted a year-over-year drop in income, falling 3.1% in the first quarter, 22.8% in the fourth quarter of the last fiscal year and 3.5% in the third quarter of the last fiscal year.
Well Fargo (NYSE: WFC) Could Steal the ShowWhile JPMorgan earnings will take center stage Friday, Wells Fargo (NYSE: WFC) may stir up more of an investor frenzy.
A Warren Buffett favorite, Wells Fargo is expected to come in with earnings of 81 cents a share, a nearly 18% increase from the same period a year ago. Revenue is estimated to rise some 4.6% to $21.32 billion.
In Wells Fargo's favor is its limited exposure to global economic and financial market conditions. Although Wells, along with other big banks, faces mounting regulatory inquiries stateside, it just may escape the investigation other big banks can expect due to the recent Libor manipulation scandal.
Another Wells Fargo strength is its mortgage business. While low interest rates have been a drag on banks' margins, those historic near-zero rates have put some life in the mortgage market, a plus to banks like Wells Fargo, which boast large lending portfolios.
The financial sector overall is expected to report a 52.9% jump in second-quarter earnings, propelling the Standard & Poor's 500 Index to a lukewarm 5.5% second-quarter gain, but a gain nonetheless, according to data compiled by Thomson Reuters.
A final thought on financials this quarter: Don't expect much in the way of company guidance. Too much uncertainty exists in the global economy for the big banks to provide much in the way of future direction.
JPM stock was down 0.75% to $34.33 by 2:30 Thursday, the afternoon before its earnings release.
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