JP Morgan: Low Expectations Could Portend Surprise in Capital Markets
While most of the banks on tap to report next week also face industry-wide questions about declining margins and growth, they will also face additional scrutiny on capital markets and expenses.
The good news for JPMorgan Chase is that low expectations are easier to beat. With the quarter already seeing slow business in the wake of Hurricane Sandy and in the face of the fiscal cliff, former CFO Doug Braunstein estimated capital markets activity would be down as much as 20 percent. Instead, the late rush to raise debt amid low interest rates has been an unlikely surprise. (Read More: The Key to Earnings Season? Banks)
According to Dealogic, global investment banking revenues were down 3 percent in 2012. While loan syndication and equity issuance dropped sharply, bond issuance skyrocketed — up 30 percent from the prior (also, record) year, and comprising the biggest share of investment-banking revenues in 15 years.
That portend good news for JPMorgan, which holds the top spot in global debt deals.
Bank of America: Another Quarter Wiped Out?
Bank of America said it expects to post a modest profit for the fourth quarter, despite being loaded with pre-tax charges from long-running mortgage settlements. (Read More: Wall Street Mixed on BofA Settlements)
All in, the bank will use as much as $5.2 billion that it hadn't previously reserved to cover these costs, which include a $1.1 billion cash payment for robo-signing, and a $2.7 billion cash payment as part of a separate settlement with Fannie Mae.
Investors aren't getting their hopes up, after the third quarter saw charges from a similar settlement knock its earnings per share to zero.
CEO Brian Moynihan has said that a "recurring revenue stream" — ie, a predictable one — will be needed before returning more capital to shareholders.
Citigroup: Starting Fresh
For Citigroup, the fourth quarter will be the first for newly minted CEO Michael Corbat. In a big first move in December, he axed 11,000 jobs, a strategy that will result in a billion-dollar charge in Q4.