JP Morgan set upbeat tone for banking sector

JPMorgan Chase & Co JPMorgan Chase & Co is expected to post an increase in first-quarter profit of more than 50 % on Wednesday, as the bank weathers a slowdown in trading and fewer borrowers default on credit card loans.
Analysts on average expect the second-largest U.S. bank earned $1.16 a share,  That compares with a year-earlier profit of 74 cents a share.
JPMorgan is the first of the major U.S. banks to report earnings and is expected to set an upbeat tone for the sector, showing an improvement in credit quality and only moderate trading losses. The bank is closely watched for its broad exposure to both consumer and investment banking.
A big driver for the improved performance is expected to be JPMorgan's credit card business, which lost $303 million in the first quarter of 2010, but seems to be turning around. In the fourth quarter, it earned $1.3 billion.
"It's not like credit is fantastic right now, but we're moving the right way pretty quickly," Jeff Harte, a bank analyst at Sandler O'Neill, said in an interview on Tuesday.
JPMorgan Chief Executive Jamie Dimon is often praised for avoiding the worst of the credit crunch through careful risk management in fixed income trading. But the bank suffered big losses from mortgage loans and other types of consumer credit.
The mortgage losses may continue for some time, but credit card lending appears to be improving and it was the bank's second most profitable unit in the fourth quarter. Financial regulatory reform may crimp future profits in this business.
Investment banking was the most profitable area, with a $1.5 billion profit. The business was tough in the first quarter, analysts said.
European debt fears, high oil prices and the nuclear crisis in Japan have made for a jittery trading environment. With the Dodd-Frank financial reform law limiting a bank's ability to use its own capital to trade for profit, Wall Street sales and trading revenues are likely to have slipped.
JPMorgan beefed up its commodities trading with the acquisition of the non-U.S. assets of RBS Sempra last year. Strength in that business could help dampen weakness elsewhere, Sandler O'Neill's Harte said.
JPMorgan's investment banking business should also benefit from increased corporate debt issuance and it is using its balance sheet to win investment banking business, said Paul Miller, a bank analyst at FBR Capital Markets.
"They've been very good at taking advantage of the liquidity in the system," said Miller.
JPMorgan attracted attention last month when it agreed to be the only bank making the initial commitment on a $20 billion bridge loan to help finance AT&T Inc's acquisition of T-Mobile USA from Deutsche Telekom AG.
The analysts with the best track record are forecasting earnings of $1.17 a share, according to Thomson Reuters StarMine SmartEstimate.
JPMorgan shares have risen nearly 8 % over the course of the quarter.