JPMorgan Kicks Off Mother of All Kitchen-Sink Earnings Season

• January 11 2018
• Felice Maranz

On Friday morning, at 6:45 in New York, JPMorgan Chase & Co. is due to lead a fourth-quarter banks earnings season that will be muddied by tax items and other one-off charges. Investors wondering whether decade-high stock prices can keep rising are probably g…

On Friday morning, at 6:45 in New York, JPMorgan Chase & Co. is due to lead a fourth-quarter banks earnings season that will be muddied by tax items and other one-off charges. Investors wondering whether decade-high stock prices can keep rising are probably going to look past the quarter’s peculiarities.

The focus, instead, may be on future tax rates and possible secondary effects cascading from tax cuts, like more lending and corporate deals. Eyes will also be trained on credit-quality trends, the health of the consumer and capital markets activity. Beyond the quarter, watch for easier regulations, the influence of new European rules known as MiFID II, and what happens with cryptocurrencies and cybersecurity.

Trading set to drop

Investors already know about a slew of tax write-offs due in the quarter, including JPMorgan’s "adjustment" of as much as $2 billion, a $20 billion hit at Citigroup and a $5 billion hit at Goldman. They also expect to see a slump in trading, after JPMorgan and BofA executives in early December spoke about declines of 15%.

"The fourth quarter will be noisy to say the least," with meaningful tax-related charges, Macquarie analysts led by Piers Brown write in a note. The quarter was also "uninspiring," weighed down by "continued low volatility, challenging fixed income comps and limited client engagement."

‘All about the future tax rate’

Macquarie sees management outlooks driving bank-stock performance more than the actual quarterly results, with attention on global growth, divergent central bank policies, and the Federal Reserve cutting ownership of U.S. Treasuries and mortgage-backed securities.

JPMorgan’s quarter is "all about the future tax rate," along with the outlook for commercial lending and investment banking, due to the impact of lower taxes for commercial and corporate customers, RBC’s head of U.S. bank equity strategy Gerard Cassidy says in an email to Bloomberg. After that, watch credit-card business trends, Cassidy says.

What will move stock prices?

JPMorgan’s shares may respond to a disclosure about the bank’s 2018 effective tax rate, Morgan Stanley analyst Betsy Graseck writes; her bull-case estimate is 19%. Shares may also be sensitive to expenses and remarks about the bank’s credit card strategy, especially with regards to Chase Sapphire.

Graseck will be listening to JPMorgan’s conference call for comments on how much of its tax-overhaul benefit drops to the bottom line versus gets competed away, along with remarks on deposit betas, the co-brand card environment, the impact of MiFID II, the outlook for loans, updates on person-to-person payments efforts such as Zelle and regulatory shifts.

Possible loan-loss reserve build

Atlantic Equities analyst John Heagerty will be searching JPMorgan’s results "for evidence that credit quality remains healthy and that loan growth continues." Atlantic is also watching for management commentary on customer retention for the Sapphire credit card.

Credit Suisse analyst Susan Roth Katzke warns JPMorgan may set aside more money to cover souring loans during the quarter, with loss rates migrating upward due to a "mix shift" and seasoning in the consumer portfolios, with a "modest" loan-loss reserve build.
 

JPMORGAN ESTIMATES

• 4Q adj. EPS $1.69 (range $1.65-$1.78) 
• 4Q adj. revenue $25.51b ($25.41b-$25.61b) 
• 4Q net yield on interest-earning assets 2.39%
• 4Q provision for credit losses $1.48b 
• NOTE: Estimates for all banks may not compare due to U.S. tax law changes

DATA

• 15 buys, 15 holds, 4 sells; avg PT $114
• Implied 1-day share move following earnings 2%
• Shares rose after 6 of prior 12 earnings announcements
• Adjusted EPS beat or met estimates in 11 of past 12 quarters

TIMING

• Earnings release expected Jan. 12 at 6:45am
• Call 8:30am, 866-541-2724

WELLS FARGO 

• Earnings release expected Friday at 8am
• 4Q EPS estimate $1.02 (range 93c to $1.06)
• 4Q net interest margin estimate 2.87% 
• 4Q net charge-offs estimate $732.4m
• 4Q provision for credit losses estimate $737.2m
• Call 10am, 866-872-5161

CITIGROUP

• Earnings release expected Tuesday at 8am
• 4Q adj. EPS estimate $1.20 (range $1.14 to $1.32)
• 4Q adj. revenue estimate $17.25b (range $16.97b-$17.68b) 
• Call 10am, 866-516-9582 pw 83773629

BANK OF AMERICA

• Earnings release expected Wednesday at 6:45am
• 4Q adj. EPS estimate 45c (range 40c-50c)
• 4Q revenue net of interest expense estimate $21.47b (range $20.92b to $22.14b)
• 4Q net interest yield estimate 2.37% 
• 4Q provision for credit losses estimate $966.6m
• Call 8:30am, 877-200-4456 pw 79795

GOLDMAN SACHS

• Earnings release expected Wednesday at 7:30am
• 4Q adj. EPS estimate $4.97 (range $4.53-$5.40)
• 4Q net revenue estimate $7.63b (range $7.13b-$8.03b)
• Call 9:30am, 888-281-7154

MORGAN STANLEY

• Earnings release expected Thursday, Jan. 18 at 7am
• 4Q adj. EPS estimate 77c (range 71c-81c)
• 4Q net revenue estimate $9.24b (range $8.90b-$9.58b)
• Call 8:30am, 877-895-9527 pw 6464728

— With assistance by Jennifer Surane, Laura J Keller, and Hugh Son