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3 Things to Watch for in JP Morgan’s Earnings Report


The first must-listen earnings conference call of July happens Friday morning when JP Morgan (JPM) releases its Q2 report. The official estimate is for JPM to earn 76-cents per share on revenue of $21.8 billion. The reality is JPM can report almost anything they want. As so clearly demonstrated by the company's May 10th announcement of greater than $2 billion in "hedging" losses; profits and losses are a bit of a moving target at modern financial institutions.

In the case of JPM a lack of financial clarity actually makes the call more compelling. The JP Morgan report and must-listen conference call is about three things, only one of which involves actual numbers. Nesto and I discuss the most important things to listen for tomorrow morning:

1. CIO Update

As previously discussed here and elsewhere, JPM made a "boo boo" and lost somewhere between $2 and $10 billion "hedging." Those aren't official numbers but best guesses have been taken from JPM's May 10th conference call announcing the loss and a New York Times story citing the ever popular "unnamed sources."

What analysts and traders will demand tomorrow is an update on where the losses stand and whether or not the positions are still being unwound. Previously, CEO Jamie Dimon said JPM would be willing to withstand volatility to carefully unwind the trades and maximize their economic value. That's a sane and rational notion but the Street wants the position gone and a total on the damages.

2. LIBOR Details

Barclays (BCS) is in the headlines of the LIBOR scandal but plenty of American banks are involved too, not least of which being JP Morgan.  Dimon has plenty of other things to discuss with the Street but there's no way he gets off the call without being asked about his bank's role in the affair.

Barclays couldn't have really rigged rates by themselves. There was a bidding process and counter-parties. JPM would have been dragged into the mess under any circumstances, but after the CIO disaster the company isn't going to get the benefit of the doubt on anything.

LIBOR will be a theme of the financial reports and JPM has the ill-fortune of leading the parade.

3. General Mood

Prior to May 10th Jamie Dimon was regarded as the King of Wall Street. As one of the last men standing after the financial crisis, Dimon was a leading critic of pending Dodd-Frank legislation and the most vocal defender of the banking status quo. That all changed when a chastened, if not humiliated Dimon was forced to admit the bank he runs is as flawed as all the rest.

Despite a bravura performance on Capitol Hill, the jury remains out on whether or not Dimon's famous mojo is intact. Investors will be paying close attention to whether or not JPM and Dimon have command of the CIO situation and JPM's ongoing operations. If he seems distracted, if core operations are slowing in an unanticipated way, if JPM shows any weakness at all it's going to be taken as a sign that Wall Street needs a new ruler.

As for forward looking earnings? Barely an afterthought.