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The JPMorgan Chase (NYSE: JPM) earnings report due tomorrow (Friday) gives CEO Jamie Dimon a chance to put the huge trading losses from the "London Whale" behind him.
The "London Whale" trades are part of the hedged strategy that went bad and cost the bank nearly $6 billion. JPM took the majority of the hit in the second quarter.
JPM stock tumbled in the weeks that followed after details were uncovered and trading losses swelled. Since then, shares have staged a notable recovery rising from $34.59 on July 11 to the recent price of $42.25.
Now JPM earnings have a chance to shake off the scandal and impress investors.
Expectations have grown for Friday's numbers, with the consensus estimate raised from $1.16 per share to projections of $1.21 per share. Estimates have increased in the last three months from $1.04.
Analysts are predicting earnings of $4.74 per share for the fiscal year, with revenue for the year to come in at $97.76 billion.
The fresh forecasts are 18.6% better from the same quarter a year ago when JPM posted earnings of $1.02 per share.
JPM Earnings: Lingering Concerns
While things are looking better for JPM, and the largest U.S. bank by assets is expected to report remarkably good numbers, the bank still faces a handful of hurdles from lawsuits to mushrooming concerns over a bevy of worldwide economic uncertainties.
A List of Lawsuits
- Heading into Friday's JPM earnings release, a report from The New York Times suggested that federal regulators are not as anxious as Dimon to bury the London Whale tale and are preparing a criminal case over the trading losses.
- Last week, the Residential Mortgage Backed Securities Working Group filed a lawsuit against JPM for allegedly fraudulent misrepresentations made by its Bear Sterns unit (acquired in 2008) in the sale of mortgage-backed securities.
Reserve Releases
- Also to be closely watched is JPM's reserve release, or its cushion against bad loans. As The Wall Street Journal explained, reserve releases occur when the sums that banks add to their loan loss reserves are less than their write-offs of uncollectible loans. The difference gets poured into net income.
In recent quarters, The Journal detailed, the reserve release has played a prominent role in goosing bank profits, especially during weak economic conditions and more recently, amid the spate of new profit-suppressing regulations.
Robust reserve releases can enhance earnings in a manner that is unsustainable long term. It can paint a rosier picture of a bank's health. Plus, it leaves banks more vulnerable should economic conditions deteriorate.
Share Buybacks
- In the wake of the London Whale trade debacle and ensuing losses, JPM was forced to suspend its $15 billion share buyback program. The bank said after its second quarter results it hoped to soon be in a position to resume the share repurchase plan.
Housing Recovery
- Listen for any words from Dimon that the housing market recovery is gaining momentum and what effect it has played and will add to the bank's mortgage business and credit quality.
Executive Shuffles
- Reports swirled Thursday that CFO Douglas Braunstein, who along with other executives dismissed initial news reports about the London Whale trade, will exit his post at the bank, marking the latest executive shift at the bank amid the massive losses. No replacement was named or hinted at.
JPMorgan (NYSE: JPM) stock is up about 26% year-to-date and gained 0.79% Thursday to close at $42.10.
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