JP Morgan will announce its Q4 2013 earnings Tuesday morning at 7:00 am EST, with a conference call to follow at 8:30 am EST, and analysts are split on whether or not the bank's legal troubles will harm its bottom line.
According to Bloomberg, the Wall Street consensus is that the bank will report a quarterly revenue of $23.5 billion, down from $25.1 billion at the same time in 2012.
Naturally the question on everyone's mind is how the company will fair given the mountain of legal fees it has paid out to the government for variety of transgressions — from mortgage fraud dating back to the financial crisis, to its failure to report account irregularities with its former client Bernie Madoff, to the London Whale trading loss.
All told, this year JP Morgan has paid enough in fines to take care of the New York Yankees' payroll for 20 years, according to the NYT.
As a result, last quarter JP Morgan reported its first quarterly loss ever under CEO Jamie Dimon. That was due to non-recurring items (litigation expense and reserve losses), which took the bank's earnings per share down to $-0.17 per share from $1.42 earnings per share.
Since then, the bank has paid a $13 billion settlement to settle government charges that it sold bad mortgages, as well as $4.5 billion to private investors in the bank's mortgage bonds. Last week, the bank paid the government an additional $1.7 billion to settle charges surrounding its relationship with Bernie Madoff.
Just to name a few things.
But JP Morgan has been preparing for this, and if you look at the stock price, which is up 27.5% year over year, it seems like shareholders have been too.
In the bank's third quarter earnings announcement, management said the bank dug into its coffers and found $23 billion to put aside to deal with the over a dozen probes into its activities being conducted by regulators around the world. CFO Marianne Lake said the future would be "lumpy", but was confident the bank could handle it.
So Wall Street is split on whether or not JP Morgan can shake this off. Credit Suisse is bearish on the stock, and thinks that a $600 million legal bill will significantly cut into JPM's operating earnings per share.
Morgan Stanley, on the other hand, is bullish (via Benzinga):
“Overweight JPM on expectations for improving credit, efficiency and client wallet share – all driving upward EPS revisions along with rising ROEs. Improving credit, share gain, capital return lift 2015 EPS 54% vs 2013. Together, these should boost ROE from 8.3% in 2013 to 11.3% in 2015.
Not a word about legal issues — perhaps because they don't matter.
We'll find out tomorrow.