JPMorgan Chase & Co. (NYSE:JPM)’s earnings estimate has been lowered by RBC Capital Market analysts Gerard Cassidy and Jake Civiello, citing a decline in expectation from investment banking and mortgage banking revenues. The analysts have updated third quarter, 2013 and 2014 estimates to $1.36, $5.95 and $6.38 from $1.41, $6.00, and $6.40, respectively.
The estimates have been lowered only due to capital market concern, while for JPMorgan Chase & Co. (NYSE:JPM), RBC Capital Markets have an Outperform rating with a price target of $68.
Lower credit costs a potential catalyst
Analysts note that JPMorgan Chase & Co. (NYSE:JPM) will draw positive results from lower credit costs, and consensus estimates do not wholly reflect the extent to which conservative post-crisis underwriting will drive future provision expenses lower. Expectation on mean loan loss provision at present is $3.7 billion and $4.9 billion for 2013 and 2014, respectively. However, RBC analysts expect provision expenses to come in at $1.75 billion for 2013, and then “rise modestly into 2014.”
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The increased estimates, for 2014, are given on the basis of an extraordinarily low level of provision recorded in the second quarter, which will impact the full year provision.
JPMorgan best in class
JPMorgan Chase & Co. (NYSE:JPM) is looking forward to return excess capital to shareholders through dividends and share repurchases. It is expected that JPMorgan will return over 54 percent of earnings in 2013. Additionally, the firm is well positioned for rising interest rates. It is expected to draw $2.0 billion of pretax net interest income for a 100 basis points parallel shift up in the rate curve and $900 million if only the long end of the curve increases by 100 basis points. According to analysts, JP Morgan is the best managed money-center bank of its size. It has a best-in-line business line that never slips from the top 3 positions. The bank is also able to realize synergies and cost cuts due to one of the best management teams and business lines.
Well diversified business model
JPMorgan Chase & Co. (NYSE:JPM) business is well diversified, with approximately 50 percent of revenue coming from consumer banking, 35 percent from corporate banking, 8 percent from commercial banking and 8 percent from asset management. This combination of different businesses helps the company to remain profitable throughout the cycle. During the financial crisis, JP Morgan was one among those banks who did not lose money.
The bank is doing every bit to enhance its wholesale banking business with the formation of Corporate & Investment Bank business line along with Commercial banking and Asset Management business lines. There are high chances that it will boost its international wholesale banking business in the coming years.