JPMorgan Up, But Expectations Low

JPMorgan trading up 2 percent pre-open on a decent quarterly report...the stock goes up on just a decent report? Yes, because the expectations have been VERY LOW...earnings of $1.27 beat expectations of $1.21, revenue of $26.78 billion was well ahead of consensus of $24.9 billion.

Credit cards: Delinquencies and net charge-offs improved, so JPM has reduced loan loss reserves by $1 billion, which added 15 cents on the bottom line; expect this to be a major driver of earnings beats for financial companies (it was for Capital One Wednesday).

Mortgages: Delinquencies and net charge-offs improved "modestly," but "we expected credit losses to remain elevated." However, they took $1.3 billion in reserves for litigated around mortgage-related matters.

Trading: Not as bad as some feared.

Negatives: Net interest margin (NIM) was poor, but everyone knew about that because the yield curvehas flattened.

Capital ratios: Dimon comfortable with capital ratios, smartly says he will continue buybacks. Basil III Tier One Capital Ratio of 7.6 percent...more importantly, Dimon said he was comfortable with keeping the ratio at 7.6 percent, and will continue to buy back stock.


Why is this important? Because regulators want even higher capital ratios for systemically important banks by 2019—the requirements are not etched in stone, but they will likely require JPM to have ratios of about 10 percent by 2019. Dimon is saying to his investors, "I make a lot of money, and I am going to give it back to you in the way of buybacks, NOW."

Finally, talk about managing your times in the press release, I couldn't tell if I was reading JPMorgan's annual report or the annual report of a well-endowed religious charity: "Through the recession we have helped hospitals, school systems, banks, state governments, countries and central banks, and we will continue to do so...provided credit to and raised capital of over $900 billion...originated mortgages to more than 360,000 people...provided credit credit cards to approximately 4.6 million people...lent or increased credit to more than 16,800 small business...lent to more than 800 not for profit and government entities...remain committed to helping homeowners and preventing foreclosures."


Marriot down 4 percent pre-open, reported earnings of $0.37, in line with estimates, but guidance is weak...domestic worldwide revenue per available room (RevPAR), the key metric for hotels was up 6.6 percent, within expectations...but guidance is poor: Worldwide RevPAR has been lowered, due largely to weakness in Japan and the Middle East. Thirs quarter earnings per share of 25 cents to 29 cents a share also below consensus of 30 cents a share. Bookings look disappointing. Remember, they are spinning off their timeshare business, which should happen by the end of the year.

ConocoPhillips jumps 10 percent after announcing a plan to split the company into two, an exploration and production company and a refining business. The game here: divest the downstream business and shift away from the integrated oil business model. The split will be completed in the first half of 2012. Who's next? There's not many integrated companies left ExxonMobil, Chevron and Hess.

Yum Brands rises 3 percent after better-than-expected earnings 66 cents a share vs. 61 cents consensus. Results were propelled by very strong performance in Asia that offset "a very disappointing quarter in the U.S." China same-store sales for the fast food giant soared a stronger-than-expected 18 percent, sharply contrasting to the 4 percent decline in U.S. comps.

Inflation is seen up 9 percent in China and up 7 percent in the U.S. this year, but 2011 earnings guidance is raised to about $2.83, inline with current Street estimates.

The intense bidding war continues between natural gas pipeline operators. Williams raised its offer to acquire Southern Union by $5/share to $44/share in cash. The $5.5 billion offer ups the ante after Energy Transfer Equity raised its own bid last week for Southern to $5 billion ($40 a share). Shares of Southern are up 5 percent to just under $44 pre-open.

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