JPMorgan Chase & Co. 4Q17 Earnings Preview: Tax-Related Charge Expected

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Friday brings the start of 4Q17 bank earnings, the unofficial kick-off for the December quarter reporting period, with JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co scheduled to report. Consensus for JPMorgan Chase 4Q17 earnings stands at $1.70 per share on $25.3 billion in revenue, compared to $1.71 per share on $25.5 billion in revenue in the year-ago quarter.

JPMorgan chase 4q17 earnings
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What to expect in the JPMorgan Chase 4Q17 earnings call

Wall Street has been buzzing with how President Trump’s tax reform bill will impact major U.S. banks this year, and as a result, bank stocks have been soaring. The KBW Nasdaq Bank Index surged on Wednesday and continued to head higher on Thursday as well.

In a preview note covering major U.S. banks this week, Deutsche Bank analyst Matt O-Connor said that much of the focus this time around, in both the reports themselves and the earnings calls accompanying them, will be on how much of a boost the banks’ earnings will receive from the tax reform bill. O-Connor highlighted several comments from banks about expected impacts from tax reform.

JPMorgan Chase management already said a -$2 billion adjustment for cash repatriation is possible, and he said that any commentary on share repurchases will be of interest because of the climb in the bank’s stock. O-Connor also expects JPMorgan Chase management to offer guidance for the first quarter, but he believes they won’t give full-year estimates for fiscal 2018 until the investor day on Feb. 27.

Loan growth remained weak

Despite the recent run in bank stocks, analysts are generally warning that the fourth-quarter earnings results could be a bit of a bust due not only to the massive charges most banks are likely to take in connection with expected benefits from tax reform, but also to loan growth that was likely still weak and flat net interest margins. Investment banking fees are also generally expected to be only moderately up, JPMorgan analyst Vivek Juneja said of the entire industry.

Investors and analysts will also be checking the JPMorgan Chase 4Q17 earnings report and those of other banks for signs that loan growth and trading revenues will finally pick up. UBS analysts said earlier this month that they don’t believe the fourth quarter brought a revival in loan growth. They’re projecting only a 3.5% increase for JPMorgan Chase. As far as net interest margins, UBS looks for only 2.39% from JPMorgan Chase and roughly flat margins across the industry on a quarter-over-quarter basis.

Trading revenues also of interest in JPMorgan Chase 4Q17 earnings release

Banks are also up against a difficult year-over-year comparison for trading revenues because trading picked up dramatically in the fourth quarter of 2016 around the presidential election, MarketWatch notes. Volatility also remained low during the fourth quarter, presenting another barrier to trading revenue growth.

Barclays is expecting JPMorgan’s trading annual trading revenue to be down by 15% to 20%, with fixed income, commodities, and currencies revenues lagging behind overall equity trading revenue. Investment banking fees are expected to tick slightly higher, however, with UBS projecting a 2% increase for JPMorgan.

JPMorgan Chase stock drifted higher in early trading on Thursday, climbing by less than 1% to as high as $110.71 to add to Wednesday’s gains.

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