JPMorgan's Investor Day Is Coming Soon: Here's What's Important

Deutsche Bank’s Matt O'Connor maintained a Buy rating for JPMorgan Chase & Co. (NYSE: JPM), with a price target of $70. The analyst mentioned the key focus areas as :

How much would revenue miss expectations, if the economy and markets remain weak?

Management has projected $2 billion of net interest income growth for FY16, driven by a better balance sheet mix and core loan growth. This implies flat to modest revenue growth, versus the Deutsche Bank estimate of 2–3 percent growth. With weaker macro conditions, there is downside to both capital markets revenues and net interest income, O'Connor mentioned.

Related Link: JPMorgan CEO Jamie Dimon Bought $26 Million Of Company's Stock

In case of a revenue miss, will cost savings exceed prior targets?

JPMorgan achieved cost savings of $1 billion in CCB, versus the target $2 billion, and of $1.3 billion in CIB, versus the target $2.8b. “Some of the CCB savings were re-invested back into the business and we expect further investments in 2016,” O'Connor wrote.

How much more capital optimization remains?

It is unclear when JPMorgan’s free up of capital would benefit shareholders, “given CCAR constraints and our view that capital deployment at the biggest banks will remain under 100 percent until rates normalize, the economy improves and the political environment softens (all of which seem far away),” the analyst said.

Does credit/risk management remain better than peers' credit/risk management?

JPMorgan’s credit/risk management was impressive before the crisis, and is likely to continue to be so. O'Connor added, however that “being reassured would be helpful, given credit concerns broadly are rising.”

Why has the company entered into a strategic relationship with a third party online lender given potential unknown risks?

JPMorgan partnered with OnDeck, and there are media reports of the former acquiring about $900 million in personal loans originated by Lending Club. “While these relationships may provide potential revenue growth opportunities (in a challenging revenue environment), in the past, banks often under estimate the various risks associated with third party lending relationships (such as regulatory and political risks),” the Deutsche Bank report noted.

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