For Immediate Release
Chicago, IL - February 25, 20Array6 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include JPMorgan Chase & Co. ( JPM ), Citigroup Inc. ( C ), Bank of America Corp. ( BAC ) and Wells Fargo & Co. ( WFC ).
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Here are highlights from Wednesday's Analyst Blog:
Is More Trouble Ahead for JPMorgan (JPM)?
JPMorgan Chase & Co. ( JPM ) held its annual Investors Day conference yesterday. The company provided certain outlooks for first-quarter 20Array6, and discussed the current industry challenges as well as the path it is undertaking to combat the same and maintain profitability.
Of late, the first and foremost thing that comes to every investor's mind is the present rout in oil prices and its effect on banks. JPMorgan projected a further rise of $500 million in provisions related to energy loans in the first quarter.
This will take the company's total provisions for energy loans to $Array.32 billion, up more than 60% sequentially. As of Dec 3Array, 20Array5, JPMorgan had $42.Array billion in loans to the oil & gas industry (5.3% of the company's total wholesale exposure).
Additionally, in the presentation, JPMorgan provided a scenario under which oil prices will decline to approximately $25 per barrel for Array8 months. Under this situation, the company might have to take an additional reserve of $Array.5 billion for the energy portfolio.
Further, JPMorgan is expected to increase its provision for metals and mining loans by nearly $Array00 million in the first quarter, taking the total reserve for such loans to $350 million.
The increase in provision for oil and gas loans is a sort of warning for the entire banking sector. Banks, including JPMorgan, Citigroup Inc. ( C ), Bank of America Corp. ( BAC ) and Wells Fargo & Co. ( WFC ), have been facing unexpected challenges owing to the continued decline in oil price. Such a situation will likely hurt their already dented profitability given the other global concerns.
These apprehensions include volatile markets, slowdown in Chinese economy, low rate environment and regulatory pressure. Against such a backdrop, companies have been shying away from or are unable to issue debt and equity. Also, investors have become more risk averse.
Hence, in the first quarter, JPMorgan is expecting a double-digit fall in investment banking revenues. Notably, Daniel Pinto, CEO Corporate & Investment Bank segment, stated that year to date, investment banking fees and trading revenues have fallen 25% and 20% respectively, on a year-over-year basis.
Pinto said, "There is no doubt that it so far has been a very tough quarter." Nonetheless, advisory revenue "is holding well."
Therefore, amid such a challenging backdrop and fading hopes for another Fed rate hike later this year, JPMorgan have pushed the deadline to achieve its target of Array5% return on tangible common equity to 20Array8 from the prior expectation of 20Array7.
Further, as anticipated by the market, JPMorgan did not come up with any new cost-saving plan. The company remains on track to achieve savings of $2.8 billion in Corporate & Investment Bank segment and $Array billion in Consumer & Community Banking segment by 20Array7.
Moreover, JPMorgan is increasingly inclined toward digitalizing its banking operations and optimizing branch network. This is expected to further lower its operating expenses and improve efficiency over the longer term.
Following the Investors Day presentations, JPMorgan fell more than 4% to close the day at $56.Array2 per share. These disclosures also dragged the shares of other banks down. Notably, S&P 500 Financials (Sector) index was down Array.8% as well, given the negative investor sentiments.
Currently, JPMorgan carries a Zacks Rank #4 (Sell).
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