MorningWord 1/13/2012

by Dan January 13, 2012 9:14 am • Commentary

MorningWord 1/13/12: The SPX continues it’s ever so gradual march towards 1300, even as it felt like we were poised to take a breather yesterday, the markets remain very resilient in the new year. The big story yesterday buoying positive sentiment was the fairly dramatic retreat in European sovereign debt yields which carried over to the Euro staging a nice relief rally off of the recent 52 week lows.

Interesting action in the US banks yesterday morning after opening up 1-2% across the board only to sell off a couple % and then for most names (aside from BAC) closing up on the day. U.S. bank stocks went from being the ugly red-headed step child just a few weeks ago to being all the rage. I do believe that if the banks had continued their depressing action into the new year that US and European equity markets would likely be down on the year and have an entirely different feel, but they and I guess “we” were due. I have said this a few times in the last week or so, but if you think we have made the lows of the year in the first 9 trading days than you are nuts. I am not telling you that stocks like BAC will be down on the year anytime soon, but in some ways it doesn’t need to be, especially after gaining 22% ytd, but the broad market will most definitely be in the red at some point and the gazillion $ question is from what levels?


JPM The Main-Event

JPM’s Q4 results are out this morning, stock is trading down about 2.5%….The conference call starts at 9am and that will likely determine the course of the banks stocks for the balance of the day. Here were some quick thoughts by UBS following the reported results:

Earnings helped by a low tax rate

EPS roughly in line but helped by lower tax rate

JPM reported 4Q earnings of $0.90 (UBS estimate $0.88), in line with consensus.

Results included a roughly half billion DVA loss, offset by higher than expected

reserve releases. The tax rate came in well below our outlook, which we estimate

added $0.16 to earnings, not a high quality driver of earnings, in our view.

RFS results appear soft

RFS revenues were $6.4 billion, well below our estimate of $7.4 billion and

segment net income was roughly half our estimate at $533 million. Mortgage

servicing came in at a quarter billion loss, versus our expectations of break-even,

with lower production levels and higher putbacks driving the miss. In a negative

read-through for BofA, putback losses were $390 million (up 24% from last

quarter), higher than our $325 million outlook.

IB revenues in line, earnings better than our low expectations

The Investment Bank revenues were roughly in line with our recently lowered

estimates and segment net income was $726 million (above our $293 million

outlook). Comp expense of roughly $1.2 billion (vs our est of $1.6 billion) drove

the better than expected segment results.


Our $44 price target assumes JPM will trade at 1.2x our 3Q12 TBV estimate in 12

months (vs. 10-year avg. of 2.1x). While we view JPM as the best positioned firm

in our coverage, we believe the difficult environment is likely to weigh on money

center bank results over the next several months.