JPMorgan Chase (NYSE: JPM) will kick off earnings season this week. The stock has performed well after surviving a pandemic-dominated 2020. Its financial performance showed just how strong the country’s largest bank has become and how its fortress balance sheet can survive a severe downturn.

This year, JPMorgan stock has hit new highs and currently trades at a premium valuation. But there are still a lot of uncertainties that investors will be looking for answers on when the banking giant reports on Wednesday, Oct. 13, before the market open.

Investment Banking (IB) Fees: In the last few quarters, the third quarter continued to witness a rapid pace of deal-making across the globe. This was largely driven by the resumption of normal business activities, excess cash levels, companies’ appetite for strengthening scale and market share, and solid economic recovery. Both the deal volume and total value witnessed drastic improvement. Thus, JPMorgan’s leadership in the space, along with favorable factors, is likely to have resulted in improvement in advisory fees.

Continued momentum in the IPO market and a steady rise in follow-up equity issuances are likely to have offered support to equity underwriting fees in the to-be-reported quarter. Bond issuance volume remained decent. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have recorded solid growth.

At the conference, Lake anticipated IB fees to rise from the prior-year quarter on the back of “continued momentum” in global M&As. At the second-quarter earnings call, the company management had expected the IB fees to be “up year-on-year but down sequentially” following a robust quarterly performance. The company still projects the same view but “more up year-on-year and less down sequentially” than previously anticipated.

The Zacks Consensus Estimate for IB fees of $2.71 billion indicates a 24.2% jump from the prior year’s reported number.

Mortgage Banking Fees: Low mortgage rates continued to fuel demand for mortgages during the third quarter of 2021 leading to a rise in new originations. Nonetheless, the origination boom in 2020 driven by the historically low rates makes comparison tough for the quarter. Also, a gradual slowdown in refinancing activities and faster prepayments weighed on the mortgage banking business.

The consensus estimate for mortgage fees and related income of $522 million suggests a plunge of 52% from the prior year’s reported number.

Net Interest Income (NII): Loan demand (except for commercial and industrial per the Fed data) witnessed marginal improvement during the third quarter of 2021. The demand for real estate and consumer loans also accelerated during the quarter.

This, along with, steepening of the yield curve (the difference between short and long-term interest rates) during the quarter, is expected to have extended some support for JPMorgan’s net interest yield and NII. However, the persistently low-interest-rate environment remained a headwind.

The Zacks Consensus Estimate for NII is $13.03 billion. This implies relatively stable performance on a year-over-year basis.

Operating Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses during the third quarter. Investment in technology to strengthen digital offerings might also have led to a rise in costs in the to-be-reported quarter.

Asset Quality: Continuing with the trend of the last four quarters and driven by improving macroeconomic backdrop and stable credit market conditions, JPMorgan is likely to have released reserves that it had taken to cover losses from the effects of the coronavirus pandemic. This is expected to have supported the company’s earnings in the to-be-reported quarter.

In the first half of the year, JPMorgan added to its asset and wealth management capabilities by purchasing several fintech companies such as 55ip and OpenInvest, which assist financial advisors in creating niche investing capabilities. It also purchased the popular Robo-advising firm Nutmeg Savings and Investment Limited based in the United Kingdom. The move came on the heels of launching its digital bank in the U.K. Then JPMorgan took a 40% stake in C6, a digital bank in Brazil, which is becoming a very attractive global banking market. In the second half of the year, JPMorgan continued buying, announcing purchases of the college financial planning company Frank and the food recommendation company The Infatuation, as well as taking a majority stake in Volkswagen’s payments business. The bank also increased its lead in U.S. deposit market share.

The consensus estimate for non-performing assets is pegged at $10.65 billion, which indicates a 6.9% decline from the prior year’s quarter. The consensus estimate for non-performing loans of $9.20 billion suggests a 16.3% fall.

Analysts are expecting JPMorgan’s managed revenue to dip to $29.76 billion from $29.94 billion the year before. Net income attributable to shareholders is expected to edge up to $9.03 billion from $9.02 billion the year before, with diluted EPS forecast to rise to $3.00 from $2.92.

JPMorgan Long (Buy)
Enter at: 167.64
T.P_1: 175.08
T.P_2: 179.46
T.P_3: 186.65
S.L: 156.28