When JPMorgan Chase & Co. convenes its annual investor day next week, analysts will look for details on new investments following a federal tax cut, and they also will seek commentary from the megabank's executives on loan growth, deposit costs and trading revenue.
JPMorgan, the largest U.S.-based bank by assets, serves as a bellwether, analysts say, so its current assessments on industrywide matters of interest such as changes in loan demand, rising funding costs and a possible rebound in trading revenue amid a volatile stretch for markets can serve as important indicators for the banking sector.
"They touch all corners of the industry," Sandler O'Neill & Partners analyst Jeffery Harte said in an interview ahead of JPMorgan's investor day Feb. 27 in New York. "They cover the whole spectrum, so people will listen closely for their outlook on everything from lending to trading."
Harte said that loan growth, while improving some in the fourth quarter of 2017 following a relatively weak third quarter, proved light overall in the second half of 2017, and analysts are eager for signs of stronger loan demand. He noted that banks, including JPMorgan, have expressed optimism that the lower tax levy — the top corporate tax rate was lowered to 21% from 35% — could spur more economic growth this year, and loan demand tends to build alongside economic activity.
JPMorgan Chase Chairman and CEO Jamie Dimon
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Fourth-quarter 2017 lending at the top 10 U.S. banks grew 2.9% from a year earlier, according to an S&P Global Market Intelligence analysis. That marked an improvement from the previous quarter's multiyear low of 1.8% growth, but it was still notably below the 4.5% lending expansion that the biggest banks collectively posted for the final quarter of 2016.
Harte said that if JPMorgan signals that demand for new credit is mounting, it could prove a positive sign for banks generally. And it would be well-timed, as interest rates are rising and pressuring banks' deposit costs. If banks can bolster lending volume this year and put new loans on their balance sheets at higher rates, he said, they should be able to offset the impact of increasing funding costs and show stable or even improving net interest margins.
Vining Sparks analyst Marty Mosby agreed. He said in an interview that analysts and investors are increasingly focused on deposit costs and banks' ability to manage such expenses and continue to report solid margins.
"It's the hot-button issue," Mosby said.
Analysts also said they are eager to hear from JPMorgan whether it is seeing a rebound in trading activity and income following a soft finish to 2017. Compass Point Research & Trading analysts said in a report that fourth-quarter 2017 trading results were on par with those posted in the final quarter of 2014, a cyclical bottom.
The tumultuous markets of recent weeks likely have boosted clients' need for trading services from JPMorgan and its Wall Street rivals, Compass Point's Charles Peabody said. He predicted that first-quarter results for big investment banking operations will get a notable boost from "good" volatility, with JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley "the biggest beneficiaries."
With JPMorgan specifically, analysts also are looking for more details on its investment plans in the wake of tax cuts. The company has said it expects a $3.5 billion tax benefit. JPMorgan Chairman and CEO Jamie Dimon told analysts during a January earnings call that a good chunk of the company's newfound tax savings will get reinvested in long-term growth.
"Don't get so exuberant that everything everywhere falls to the bottom line," Dimon said. He added that JPMorgan is "fairly aggressively investing for our future," and that executives would further address such efforts at the investor day event.
The bank, for example, is reportedly weighing the possibility of buying an exchange-traded fund business to bolster its presence in the growing, multitrillion-dollar ETF market. And JPMorgan announced that it would invest in 400 new bank branches over several years in new markets. It already has filed applications for new retail locations in the Boston, Philadelphia and Washington, D.C., metropolitan areas.
"We're a bank. We're supposed to help support and grow communities," Dimon said. "And it will enhance our growth in the future, too, by the way."