Surprisingly strong earnings from JPMorgan Chase set an early standard for the rest of banks and indicate the company could be ready to raise its dividend, analysts say.
The company reported earnings of 74 cents per share that were well ahead of analyst estimates—enough so, in fact, that it could put pressure on competitors to post equally strong results.
"They just made expectations a lot harder for Bank of America, Citi, Wells Fargo and everybody else," said Yousef Abbasi, financial desk analyst at Execution Noble, an investment bank and trading firm in New York. "You're going to see a little more pressure on their reports."
JPMorgan's better-than-expected profit helped lift its shares as well as that of the entire industry.
The KBW Bank Index gained nearly 2.5 percent and financials were easily the leading gainer on the Standard & Poor's 500 as the SPDR Financial exchange-traded fund gained more than 2 percent for the day. BofA , Wells and Citigroup all showed big moves higher as well.
"They're all up on JPMorgan now, but are they all going to be able to come to bat
and have the same kind of quarter?" Abbasi said. "JPMorgan just raised the bar for everybody."
Bank of America reports its earnings Friday while Citigroup and a handful of regional banks begin reporting Monday.
Should the rest of the sector's big names fail to match up—noted banking analyst Meredith Whitney told CNBC in February that the industry was going to take a beating from diminished loan portfolios—they could be penalized by investors.
"JPMorgan is a bellwether for many of the financials," Matt McCormick, portfolio manager at banking analyst Bahl & Gaynor Investment Council in Cincinnati, told Reuters. "Anyone who does not come in with similar results will suffer the consequences in the market."
JPMorgan also could set the tone in another area—dividend raises.
With its credit losses diminishing and operations humming along in investment banking—where it posted a robust $2.5 billion in net income—a hike from its current miniscule 5-cent dividend is likely in the offing.
In a conference call, CEO Jamie Dimon said the company would consider a dividend hike "down the road a little more" and only after several months of employment gains; declines in mortgage and credit card delinquencies, and legislative clarity on capital requirements.
Analysts Keefe, Bruyette & Woods predicted a dividend raise is likely this year.
"Overall, we view JPM's 1Q results as strong due to a combination of higher revenues, lower credit costs, and higher capital levels," KBW analyst David Konrad said in a note. "Based on this quarter's results, we continue to include a (second-half 2010) dividend increase in our estimates."
The main stumbling block to the dividend hike is financial reform regulation making its way through Congress. Banks are unsure what capital requirements will be until after the new laws are finalized. The bank said its Tier 1 capital improved to 11.5 percent in the first quarter.
"Regulators told them not to until they know what the environment will look like and what new capital ratios will look like," Abbasi said. "How embarrassing would it be if JPMorgan went ahead and increased their dividend and then they were told they have to raise more capital?"
Dimon himself expressed increased enthusiasm for recovery prospects, lending credence to the notion that the firm was planning for bigger returns ahead.
"While the economy still faces challenges, there have been clear and broad-based improvements in underlying trends," he said in a statement. "We believe these improvements will continue and are hopeful they will gather momentum, resulting in a strong recovery."