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JPMorgan is the first of the major US banks to release earnings this reporting season, and it could set the tone for the sector as its rivals will report their numbers a few days later.
The US bank swung to profit in the third quarter despite setting aside $1 billion for a legal settlement in relation to foreign exchange rigging. It is worth noting that provisions for legal costs increased by 42% from the second quarter to the third quarter. Looking to its core business, the finance house is performing well across the majority of its divisions.
Merger and acquisitions activity has been on the rise and JPMorgan saw advisory fees increase by 28%. The strength of global equity markets encouraged more companies to float and this resulted in JPMorgan posting a 24% increase in revenue from equity underwriting. The same cannot be said for the debt-underwriting division, which saw earnings fall by 16% over the same period.
The trading department eked out a small increase in income; the division as a whole saw revenue increase by 1.2%. The jump in market volatility in October wasn’t fully captured in its Q3 earnings, and this should help the Q4 figures. This year the Federal Reserve is tipped to increase interest rates, and since JPMorgan has the biggest fixed income operation, its trading revenues are likely to rise.
The company's Q3 figures came in above analyst estimates. Revenue was $25.15 billion and EPS was $1.62, while analysts were expecting revenue and EPS of $24.42 billion and $1.38 respectively. The bank will release its Q4 numbers on 14 January and the market is anticipating revenue of $24.41 billion and EPS of $1.33. Last year JPMorgan posted Q4 revenue of $24.1 billion and EPS of $1.37.
The bank will announce its full-year figures on the same day as the Q4 numbers, and dealers are anticipating revenue of $97.98 billion and EPS of $5.49. These forecasts represent a 1.8% decline in revenue and a 3.6% drop in EPS.
Investment banks are very bullish on the company, and out of the 41 recommendations, 31 are buys and 10 are holds. The average target price is $68.33, which is 15.56% above the current price. Equity analysts are less bullish on its rival Goldman Sachs. Out of the 33 ratings, 11 are buys, 17 are holds and five are sells. The average target price is $195.36, which is 4.1% higher than the current price.
The number of short positions on the finance house has increased by 19% since the Q3 figures were announced, and the short interest on the stock is now at a six-month high.
The stock is receiving support at the 200-hour moving average of $58.37, and if this level is breeched support is likely to be found in the $55 region. A good set of results may push the stock to $63.
JP Morgan is available for extended hours trading.