After witnessing strong customer activity and market volatility over the past quarters, the market return to normal and reduced volatility (compared to the prior year period) in Q4 2021 is expected to have subsided somewhat. JP Morgan‘s (JPM – Free report) Business. Market returns, which make up roughly 20% of the company’s total revenue, are likely to negatively affect its results, due to be announced on January 14, before the market opens.
Similar to past quarters, the major indexes – the S&P 500, Dow Jones and Nasdaq – saw gains during the fourth quarter, as all three touched new highs. Concerns about an acceleration of coronavirus infections worldwide, a steady rise in inflation, waning fiscal stimulus and the Federal Reserve’s tight monetary stance also weighed on investor sentiment. These factors led to the high level of stock market volatility during the fourth quarter. On the other hand, bonds traded well in the June-September quarter.
Zacks Consensus’ estimate of stock market returns of $2.18 billion indicates a 9.4% jump from the figure reported a year earlier. Consensus estimates of fixed income trading revenue of $3.31 billion point to a 16.1% decline.
Other Key Factors to Influence Fourth Quarter Results
Investment Banking (IB) Fee: Similar to the past several quarters, the fourth quarter saw a rapid pace of deal closings worldwide. The resumption of normal business activities, increased cash levels, companies’ desire to boost size and market share, and a strong economic recovery led to higher M&A numbers. Both deal volume and total value improved significantly. Thus, JPMorgan’s leadership in the field, along with positive factors, likely led to an improvement in advisory fees.
It is likely that the continued momentum in the IPO market and the continued rise in follow-up issuances of shares supported the underwriting fees for shares in the quarter to be reported. The volume of bond issuance remained decent. Thus, JPMorgan’s underwriting fee (representing about 60% of IB’s total fee) is expected to post solid growth.
Zacks Consensus’ estimate for IB fees of $3.2 billion indicates a 24% increase over the figure reported the previous year.
Loans and Net Interest Income (NII): Lending activities continued to improve in the quarter to be reported. According to the Federal Reserve’s latest data, demand for business, industrial, mortgage and consumer loans accelerated in October and November. However, high levels of payments and bonuses and intense competition for loan rates are likely to have hurt JPMorgan’s loan volumes. This, along with a persistently low interest rate environment, is expected to have a negative impact on NII and net interest income this quarter.
The Zacks consensus estimate for the NII of $13.4 billion points to a 1.3% year-over-year rise.
Mortgage Banking Services Fee: Mortgage origin operations, both purchase and financing, continued to normalize during the fourth quarter. And the build-up boom in 2020 driven by ultra-low rates makes comparison difficult this quarter. Furthermore, mortgage rates rose during the quarter under review. This has led to a sharp decline in mortgage creation activities, with steadily rising interest rates hurting refinancing. These factors likely affected JPMorgan’s mortgage income.
Consensus estimates of mortgage fees and related revenue of $549 million indicate a 28.4% decrease from the figure reported a year earlier.
expenses: JPMorgan’s plan to enter new markets by opening branches, which is on track, combined with its inorganic expansion efforts, is likely to increase operating expenses during the fourth quarter. Investing in technology to boost digital offerings may also have driven up costs in the quarter to be reported.
In December, JPMorgan agreed to pay a $200 million fine to US regulators – the Securities and Exchange Commission and the Commodity Futures Trading Commission. The company has been accused of “widespread and prolonged failures” in maintaining employee communications on personal mobile devices, messaging apps and email.
Asset Quality: Continuing the trend of the past five quarters and driven by a stable macroeconomic background and stable credit market conditions, JPMorgan is likely to have released the reserves it has taken to cover losses from the effects of the coronavirus pandemic. This is expected to support the company’s earnings in the quarter to be announced.
The consensus estimate for non-performing assets is held at $8.74 billion, indicating a decline of 19.8% from the previous quarter. The consensus estimate of $8.18 billion in non-performing loans indicates a 22.7% decline.
Management expectations for the entire year 2021
NII is expected to be valued at $52.5 billion, down roughly 4% from the 2020 level.
Adjusted operating expenses are expected to be approximately $71 billion. The year-over-year rise is largely attributable to ‘Volume Revenue and Expenses’ and the effect of foreign exchange as well as expenses related to strategic acquisitions.
The card’s net charge is expected to be around 2%, down from the previous target of less than 2.5%.
What the Zacks model reveals
Our proven model does not predict JPMorgan earnings this time around. This is because it doesn’t have the right mix of two key ingredients – a positive ESP for earnings and Zacks rank #3 (Hold) or better – to increase the odds of winning earnings.
You can reveal the best stocks to buy or sell before they are reported with the ESP earnings filter.
ESP earnings: Earnings ESP for JPMorgan is -1.75%.
Zacks Rank: It currently holds a Zacks rating of #3.
Zacks’ consensus estimate for fourth-quarter earnings was revised up 1.7% to $3.01 over the past seven days. The estimated figure is a decrease of 20.6% from the figure recorded last year. The consensus estimate for sales of $30.06 billion is for a 2.9% year-over-year increase.
Banks to consider
Here are a few bank stocks you might want to consider, as our model shows that these have the right set of items to spread out this time around:
The earnings ESP of First Republic Bank (FRC – Free Report) is +2.11% and has a Zacks rating of #3, currently. The company is scheduled to announce fourth-quarter and full-year 2021 results on January 14.
Over the past 30 days, the FRC’s Zacks consensus estimate for quarterly earnings has risen 2.1% to the top.
The PNC Financial Services Group, Inc. (PNC – Free report) to release fourth-quarter and full-year 2021 earnings on Jan. The company, which has a Zacks rating of #3 at the moment, has an ESP+3.15%. you can see The full list of Zacks #1 stocks (strong buy) today is here.
PNC’s quarterly earnings estimates have fallen slightly over the past month.
Trade Bancshares (CBSH – Free report) to announce fourth-quarter and full-year 2021 results on January 19. The company currently holds a Zacks rating of #3 and has an ESP + 2.11% dividend.
CBSH’s earnings estimates for the quarter to be released moved 3.3% north in the 30 days.
Stay up-to-date with upcoming earnings announcements with the Zacks Earnings Calendar.