JPMorgan (JPM) and Goldman Sachs (GS) are the first Dow Jones Industrial Average financial companies to report second quarter earnings. Both JPMorgan and Goldman Sachs will report second quarter earnings on July 15.
JPMorgan: Analysts’ earnings estimates call for revenue of $23.76 billion and earnings per share (EPS) of $1.30. This is compared to EPS of $1.28 from revenue of $23.9 billion in the previous quarter and EPS of $1.60 from revenue of $25.96 billion one year ago.
Revenue for JPMorgan is derived from five major businesses. These business categories include Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, Asset Management and Corporate/Private Equity. Corporate & Investment Banking showed the strongest revenue growth in the first quarter of 2014 up 43% from the previous quarter to $8.6 billion. At $8.6 billion it was the second largest contributor to the firm’s first quarter 2014 revenue and the only business category to show positive growth for the quarter.
Goldman Sachs: Second quarter earnings estimates for Goldman Sachs include estimated revenue of $8 billion and EPS of $3.14. This is compared to revenue of $9.33 billion and EPS of $4.02 in the first quarter. In June 2013 Goldman Sachs reported revenue of $8.61 billion and EPS of $3.70.
The firm has four major business divisions which include Investment Banking, Institutional Client Services, Investing & Lending and Investment Management. Institutional Client Services contributed the greatest amount to total revenue in the first quarter of 2014 and was up 31% from the previous quarter. Investment Banking was the firm’s second largest contributor to revenue in the first quarter at $1.8 billion and was also up quarter-over-quarter adding 4%.
Tightening regulations and contingencies continue to be a factor in the banking industry. Both JPMorgan and Goldman Sachs have received approval from the Federal Reserve on their respective capital planning submission requirements. The Federal Reserve’s Dodd-Frank Act Stress Test and Comprehensive Capital Analysis and Review have required banks to tighten their capital planning policy frameworks and also to make them more transparent.
Basel III scrutiny and its ongoing effects on banking capital requirements also continue to be a factor in the financial sector. A recent Wall Street Journal report discussed the possibility of excluding government bonds from an automatic risk-free categorization which could potentially require banks to hold even greater levels of capital in order to comply with industry regulations.
Both JPMorgan and Goldman Sachs have seen revenue growth in Investment Banking while other divisions continue to show wavering growth as banks continue dealing with regulatory tightening and the economy continues to strengthen. The economy’s direction, ongoing regulatory discussions and the U.S. lending environment are likely to be factors discussed by both banks in the second quarter’s earnings reports.
Both stocks appear to be fairly valued with JPM trading at $57.05 and GS trading at $169.46. Year-to-date JPM stock is down -2.45% and Goldman Sachs is down -4.40%. In 2014 the S&P 500 Financial sector has gained 5.40% year-to-date.