Bloomberg News

Analysts Cut JPMorgan Earnings Estimates on Revenue Forecast

December 09, 2011

(Updates with closing share price in the sixth paragraph.)

Dec. 8 (Bloomberg) -- JPMorgan Chase & Co.’s earnings estimates were reduced by analysts after Chief Executive Officer Jamie Dimon forecast “flat” investment-banking revenue and a “moderate” loss at the private-equity unit.

Analysts including Richard Bove at Rochdale Securities LLC cut fourth-quarter outlooks for the largest and most profitable U.S. bank yesterday, even as Dimon touted its long-term prospects. Bove cut his profit estimate 13 percent to 88 cents a share as International Strategy & Investment Group Inc. analysts led by Ed Najarian pared their forecast 11 percent to 85 cents.

“Dimon’s outlook for the fourth quarter is not positive,” Lutz, Florida-based Bove said in a note. “His view of the next two years is subdued.” Dimon is restructuring the business to adjust to new regulatory and economic realities, and “the result may be lackluster earnings for some time,” Bove said.

Investment-bank revenue would be “essentially flat” from the three months ended Sept. 30, the industry’s worst quarter for trading revenue since the markets seized up during the 2008 financial crisis. Dimon’s remarks show how U.S. investment banks still face pressure as companies delay plans to issue stock and investors sell riskier assets amid concern that the U.S. economy is weakening and Europe’s sovereign-debt crisis may spread.

The average fourth-quarter earnings estimate for JPMorgan is 97 cents a share, according to a Bloomberg survey of 29 analysts.

JPMorgan declined 5.2 percent to $32.22 in New York today and has dropped 24 percent so far this year, the fourth-worst performance in the Dow Jones Industrial Average after Bank of America Corp., Alcoa Inc. and Hewlett-Packard Co.

‘Huge Growth’

“I don’t think you should look at the business and say that’s permanent,” Dimon said at an investor conference hosted by Goldman Sachs Group Inc. in New York yesterday. “There’s going to be huge growth over 10 or 15 years.”

The company’s investment bank generated about $4.5 billion in revenue during the third quarter after backing out a $1.9 billion gain in debt-valuation adjustments. Dimon, in his presentation, excluded that accounting effect in forecasting the unit’s revenue.

Investment-banking revenue slid this year from $8.2 billion in the first quarter as concerns mounted in the third quarter that Greece would default and U.S. lawmakers would fail to raise the debt ceiling. JPMorgan said in October that the division will face similar market conditions for the rest of the year.

Global Credit Needs

The unit’s long-term prospects show promise, Dimon said in the presentation. Global credit needs may expand by about $160 trillion over the next 10 years and worldwide investment demand may increase from 20 percent of gross domestic product in 2010 to 25 percent by 2030, according to the presentation.

The company’s share price is likely to be “choppy” over the next 12 to 18 months, Betsy Graseck and Michael Cyprys, analysts at Morgan Stanley, said in a note yesterday. They cut JPMorgan’s fourth-quarter profit estimates by 8.5 percent to 75 cents a share. They increased their predictions for losses at the private-equity unit by 50 percent to $300 million and costs to repurchase bad loans to $405 million from $344 million.

JPMorgan said it plans to buy back up to $950 million in additional stock as part of a $15 billion capital-distribution program approved by the Federal Reserve in March. The company is reallocating unused money that had been set aside for dividends, Dimon said.

The bank completed an $8 billion stock-repurchase plan approved by the Fed in March after buying back $4.4 billion of common equity in the third quarter.

--With assistance from Michael J. Moore in New York. Editors: Peter Eichenbaum, Dan Reichl

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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