JPMorgan Trading Loss Seen at $6.5 Billion: Pro

JP Morgan Chase headquarters
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JP Morgan Chase headquarters

Ahead of JPMorgan Chase’s earnings report on Friday, one analyst forecast the bank’s trading loss could reach $6.5 billion.

But despite the high figure, Besty Grasek, a managing director at Morgan Stanley, predicted the bank will deliver a more positive outlook relative to some of its competitors — something investors can figure into their strategy.

“I think the important thing for investors is going to be how much have they actually closed out of the trade and what’s the forward look, because that will really set the tone for what you think the earnings will be going forward,” said Graseck.

Cost estimates of the company’s bungled bet on credit derivatives have ticked higher since CEO Jamie Dimon announced in May that the loss, which stemmed from a failed hedging strategy, would be at least $2 billion.

Share buybacks, which JPMorgan suspended after the loss announcement, are also on Graseck’s earnings radar. She will be paying attention to how soon the bank can re-engage them and how much money it will be allocating to them. Graseck told CNBC’s “Squawk Box” it would be surprising to hear if the company did have not plans for clawbacks.

“Our expectation is that they’re going to be able to show market share gains — that they’ll be able to show strong mortgage origination,” she said. “They’ve also got some improvements going on in the expense line, and we think that will carry through to a more positive outlook relative to some of their competitors as the earnings season unfolds over the next week.”

Wells Fargo will join JPMorgan in kicking off earnings season on Friday for large-cap banks. Graseck detailed what she will be eyeing in the group’s upcoming releases.

“In order to outperform, you need to have market share gains, some loan growth,” she said. “You need to be very efficient. Why? Because we do have a NIM (net interest margin) pressure from the yield curve .”

—BY’s Katie Little

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Morgan Stanley makes a market in the securities of JPMorgan Chase.



Follow Katie Little on Twitter @katie_little.