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Investment Banking Fees to Aid JPMorgan's (JPM) Q4 Earnings

Zacks Equity Research

The performance of investment banking (IB), one of the major sources of revenues for JPMorgan JPM, is likely to have been decent in fourth-quarter 2019. Thus, this will support the bank’s results to some extent, scheduled to be announced on Jan 14.

Investment banking 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.

Low interest rates and gradual easing of geopolitical concerns are expected to have offered support to IB fees. Though the number of closed deals declined during the fourth quarter, a higher number of announced M&As indicate a strong pipeline. Further, global deal value declined as well. Thus, this likely had an adverse impact on JPMorgan’s advisory fees. However, the bank’s leadership in the space is likely to have provided some leverage.

Solid equity markets performance and the central banks’ accommodative stance drove corporates to issue equities across the globe. Likewise, IPO activities witnessed an uptrend during the to-be-reported quarter. Moreover, bond issuance volumes were strong while debt issuances were muted as loan demand was soft.

Therefore, growth in JPMorgan’s equity underwriting fees and debt origination fees (accounting for almost 60% of total investment banking fees) is expected to have remained soft in the fourth quarter.

Further, management expects IB revenues to be flat on a year-over-year basis. In the December investor conference, JPMorgan’s CFO Jennifer Piepszak said, “The quarter has played out a little bit better than we thought largely on healthy investment grade flow given the rate environment. Important to note there that the wallet is shrinking. So staying flat for us year-over-year is the continuation of us taking share in IB fees.”

The Zacks Consensus Estimate for IB fees of $1.81 billion indicates a slight fall from the prior-year quarter reported number.

Overall Earnings & Revenue Projections

For JPMorgan, the Zacks Consensus Estimate for earnings of $2.32 indicates 17.2% growth on a year-over-year basis. However, the consensus estimate for sales of $27.3 billion indicates 4.4% rise.

JPMorgan Chase & Co. Price and EPS Surprise

 

JPMorgan Chase & Co. Price and EPS Surprise

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

Click here to know about the other factors that are likely to influence the bank’s overall results.

Our Viewpoint

Amid lower interest rates and soft corporate lending, somewhat decent IB performance is likely to have had a positive effect on JPMorgan’s top-line growth. Solid mortgage banking and strong trading activities are likely to have offered some support.

Currently, JPMorgan carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IB Performance Expectations for Other Banks

Among the other companies, trading revenues are a major portion of total revenues for Bank of America BAC, Goldman Sachs GS and Morgan Stanley MS. Similar to JPMorgan, IB performance is likely to have supported these banks’ revenues and earnings in the fourth quarter.

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