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Will J.P. Morgan Earnings Fail to Impress?

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Will J.P. Morgan Earnings Fail to Impress?

July 14 2015, 09.20am GMT

STOCK.com

The leading diversified banking and investment company, J.P. Morgan Chase & Co (JPM), is scheduled to release its 2015 second quarter results today before the opening bell.

While there do not appear to be any problems specific to JPM, industry-wide disruptions in certain key segments might have a dampening effect on its results.

Trading activity, which was the main driver of earnings during Q1, could well retard improvements to the company’s results in this quarter. Compounding the weakness in trading performance, a slowdown in investment banking growth might have a negative effect on the company’s cost containment efforts.

The second quarter results might well find the impressive Q1 results, which easily beat forecasts in delivering a 4.3% increase in earnings, a hard act to follow. The bottom line for J.P. Morgan in the first quarter also improved by 13.3% over the same period a year earlier.

The global economic instability which provided favorable trading conditions for JPM have probably been more than offset by tighter regulations and a lower appetite for risk from investors. These factors affected fixed income, currency and commodity trading to a great degree, though this was partially offset by a moderate growth in equity trading.

Meanwhile, the low rate environment appears to have resulted in a buoyant mortgage business as people were encouraged to refinance loans and benefit from the prevailing low rate.

There has been no decline in legal charges and restructuring costs although many of these are related to streamlining operations with a view to cost savings which add to the bottom line in the final analysis.

The highest revenue contributor for JPM is the Consumer and Community Banking segment which is expected to maintain its trend of steady growth as a result of expense creep control measures and good credit quality. While Commercial Banking is not expected to disappoint, the Corporate and Investment segment, generally the second highest revenue source, is expected to show a significant drop in earnings.

Analysts at Zacks believe that the negatives will more than offset the positives while their estimates over the last sixty days are also pessimistic. Zacks researchers forecast that second quarter earnings for J.P. Morgan will decline by 1.38% and the consensus estimate stands at $1.45.

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