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Weak Investment Banking to Hurt JPMorgan's (JPM) Q1 Earnings

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Growth in investment banking (“IB”) revenues, one of the major sources of revenues for JPMorgan (JPM - Free Report) , is not expected to have been significant in first-quarter 2020. Thus, soft growth in IB revenues is not expected to provide much support to the bank’s results, scheduled to be announced on Apr 14.

IB income basically comprises advisory fees (generated from M&A deals and IPOs) and underwriting revenues (equity and debt). So, let’s check how these are likely to have been in the to-be-reported quarter.

With overall business activities getting hampered due to the coronavirus outbreak, the number of announced M&As have declined in the first quarter. Thus, as global M&A activity has remained weak during the quarter, JPMorgan’s advisory fees are likely to have been negatively impacted. However, the bank’s leadership in the space is likely to have provided some leverage.

While IPOs have been a bright spot in the first quarter, overall weak equity market performance has resulted in a decline in follow-up equity issuances. Owing to the unexpected rise in market volatility during the quarter, investors have started moving toward safe havens like Treasury bonds. Hence, bond issuance volumes have been strong in the first quarter but debt issuances have been muted, owing to soft loan demand.

Hence, growth in JPMorgan’s equity underwriting fees and debt origination fees (accounting for almost 60% of total IB fees) are expected to have been weak in the first quarter.

The Zacks Consensus Estimate for IB fees of $1.93 billion indicates a 4.7% rise from the prior-year quarter’s reported number.

Overall Earnings & Revenue Projections

For JPMorgan, the Zacks Consensus Estimate for earnings of $2.49 indicates a decline of 6% on a year-over-year basis. The consensus estimate for sales of $29 billion indicates a 0.5% decline.

JPMorgan Chase & Co. Price and EPS Surprise
 

JPMorgan Chase & Co. Price and EPS Surprise

JPMorgan Chase & Co. price-eps-surprise | JPMorgan Chase & Co. Quote

See what other factors are likely to have influenced JPMorgan’s overall performance during the first quarter.

Our Viewpoint

Improvement in mortgage banking activities along with growth in trading revenues is expected to have aided JPMorgan’s performance in the quarter. However, a soft lending scenario amid near-zero interest rates along with somewhat weak IB performance is likely to have hurt the company’s top line to some extent.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IB Performance Expectations for Other Banks

Among other companies, IB revenues are a major portion of total revenues for Bank of America (BAC - Free Report) , Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) . Similar to JPMorgan, IB performance is likely to have somewhat supported the banks’ revenues and earnings in the first quarter.

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