It hasn't been an easy year for JPMorgan: There was the London Whale scandal, which cost the Big Bank more than $6.2 billion. Fallout from the mortgage crisis brought a $13 billion fine. And just recently JPM had to shell out another $2 billion in fines for its role in the Bernie Madoff scheme. So earnings had to be awful, right? Not exactly.
JP MorganChase & Co. (NYSE: JPM) finds itself in front of regulators yet again for misdeeds.
Chief Executive Officer (CEO) James Dimon was in Washington yesterday (Thursday) attempting to broker a settlement over the bank's sale of substandard mortgages.
Dimon met with U.S. Attorney General Eric Holder about a possible $11 billion settlement in attempts to end criminal and civil charges over JPM's questionable mortgage practices. The U.S. Justice Department said earlier in the week it could file a lawsuit over one of the bank's pending mortgage cases.
The nation's largest bank earned $1.31 a share in the first quarter of the year, compared with $1.28 a share in the same period a year earlier. Revenue rose 6% to $26.7 billion from $25.2 billion.
First-quarter net income slipped slightly from a year ago, dipping to $5.4 billion from $5.6 billion. The difference was attributed to stock buybacks, which reduced the number of outstanding shares by 4% compared to a year ago.
Analysts were looking for $1.16 a share for the quarter on revenue of $24.7 billion. The company was buoyed by improved capital market activity, in addition to a solid recovery in consumer credit and business lending.
In recent weeks, several firms raised their ratings on JPMorgan, and the stock has enjoyed a strong rally to date in 2012, rising from $33 in December to its current $44 share price.
One of the biggest advantages for JPM was a low interest-rate environment that encouraged homeowners to refinance, boosting JPMorgan's mortgage-related revenue.
"This is going to be a strong quarter for anyone who has a big mortgage lending or trading business," Paul Miller, an analyst at FBR Capital Markets, told Bloomberg News before results were released. "It might be the best quarter in a long time."
Among the most eagerly awaited results will be the financial earnings, many of which are still struggling to fully recover from the 2008-2009 financial collapse.
The projections released so far look pretty rosy.
First up is J.P. Morgan Chase & Co. (NYSE: JPM). The heavily watched investment bank reports this Friday the 13th.
According to Zacks Investment Research, J.P. Morgan will earn $1.14 a share versus just 90 cents in the final quarter of 2011.
Other financial earnings winners projected by Zacks include:
- Citigroup Inc. (NYSE: C) expected to report earnings of 98 cents next Monday, up from 38 cents the prior quarter;
- Goldman Sachs Group Inc. (NYSE: GS) projected to report $3.22 next Tuesday, up from $1.84 last time;
- Morgan Stanley (NYSE: MS) expected to report 47 cents on Thursday, April 19, up from a loss of 14 cents in the last quarter.
- Wells Fargo & Company (NYSE: WFC) which also reports on Friday the 13th (is that a bad omen?), is expected to show flat results - 72 cents a share versus 73 cents last quarter;
- Bank of America Corp. (NYSE: BAC) is projected to see a drop from 15 cents to 12 cents when it reports April 19.
Even those with good numbers this time could face storm clouds ahead.
The Financial Earnings Season Game PlanFor starters, J.P. Morgan, Citigroup, Wells Fargo and BofA, along with Ally Financial Inc., all face future hits thanks to the $25 billion settlement reached in February regarding foreclosures and malfeasance in handling mortgages left worthless by the housing crisis.
J.P. Morgan must also pay new federal penalties as a result of a settlement last week in the civil suit over actions it took that helped lead to the collapse of Lehman Brothers in 2008.
On the other hand, Wells Fargo, JPM, BAC and many others could get a significant boost from the new and improved version of the Home Affordable Refinance Program (HARP 2.0) adopted last month.
So, given all this, how can you hope to profit from any move in the financial stocks in the wake of their upcoming earnings releases?
Obviously, simply buying the stocks ahead of the reports is not the answer.