The second quarter for financial sector has come to an end and reporting season will kick off soon. Analysts will intently follow stock price changes and earnings reports that come out July 14th, having JP Morgan Chase and Well Fargo in front.
Earnings report for second quarter fiscal year ’15 (2QFY15) for the three months, until the end of June, will be released by JP Morgan Chase soon. Credit Suisse suggests earnings per share (EPS) estimate for the quarter to be $1.41 against the general estimate of $1.44 on the Street. Revenues are expected to be $24.5 billion, down 0-2% sequentially. This quarter is believed to give strong results, but weaker capital markets might hold the results back. Operating efficiency is expected to improve with a manageable increase in credit costs.
Amongst the fundamentals, Credit Suisse points out that the JP Morgan revenue momentum this quarter is likely to be similar to the peers. Investment banking revenue is believed to project weakness similar to its peers. Business revenue may take a hit owing to the selling of the commodities business, in contrast with last year.
Consumer & Community Banking is projected to post solid results with an increase of 3% quarter-over-quarter (QoQ). The increase is driven by the boost in mortgage banking and the growth within the unit. This unit of the bank is said to contribute towards the earnings growth in 2Q mostly because of its expenses control and favorable credit quality trends.
Corporate & Investment Banking is said to witness a drop of 10-15% in overall revenues in 2Q; the business unit enjoyed strong results in 1Q. Weakness is expected in the FICC revenue and investment banking. Effective expense management and the sale of commodities business is said to have improved the operating margins. Commercial Banking is believed to produce solid results with an increase of 7-10% YoY in the loan growth and stability in the net interest margin (NIM). Revenues in the unit are projected to witness an increase of 2% YoY and QoQ. As for the asset management, depreciation in the prices of assets has been factored in as a negative driver of the revenue momentum.
Credit Suisse rates JP Morgan Chase Outperform with a 12-months target price of $75.
For the consensus estimate on the earnings of JP Morgan, the Street expects revenue to increase by 0.8% while earnings per share (EPS) are projected to decrease by 7%.
Overall Sector Outlook
Credit Suisse has published a research note today, providing an outlook on the industry along with general expectations in the market. It writes that the market's all around expectation is low. The research note focuses on the key developments that have affected the earnings and the events that will influence the movement in banks’ stock prices.
With a view towards the Federal Reserve’s indication of tightening in the second half of this year, Credit Suisse is closely watching the changes in balance sheets positions and the swap books. Capital prospects – progress in the investment banking operations and the fixed income, currency and commodities (FICC) along with expense management and consumer spending are kept in focus.
Generally, it is believed that the earnings expectations for this quarter are low, but an increase in the interest rates might prove to be a tailwind affect. This would bring an unexpected strength in the earnings results and improve the efficiency. Moreover, no material restructuring charges and litigation is expected.
In terms of stock movements, Credit Suisse views Bank of America Corp. (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS) and Wells Fargo & Co (NYSE:WFC) favorably. Meanwhile, KeyCorp (NYSE:KEY), BB&T Corporation(NYSE:BBT) and Zions Bancorporation (NASDAQ:ZION) top the list in the Mid Cap Banks.