3 Things to Watch for in JPMorgan Q4 Earnings

JPMorgan Chase (NYSE: JPM  ) is set to release its fourth-quarter earnings tomorrow. 2012 was an interesting year for the country's biggest bank, to say the least. Its highly anticipated Q4 results will tell us whether the superbank went out with a bang, a whimper, or is just gracefully cruising along in the profit zone. Fingers crossed for the last option.

In the meantime, following are three things to keep an eye on when earnings are announced.

1. More London Whale blowback
It's the gift that keeps on giving: Just when CEO Jamie Dimon think it's safe to go back in the water, the London Whale resurfaces in all its ulcer-inducing glory. We already know JPMorgan lost, depending on which account you read, somewhere in the neighborhood of $6 billion in 2012 over this $100 billion derivatives bet gone wrong. (There's hardly a way a bet that big could have gone right.)

And we also know that, following the revelation of the trading blunder, Dimon spent the remainder of the year doubling down on risk, rearranging top management, and clawing back bonuses, trying to insure such a thing would never happen again. Now, a new internal report on the London Whale incident is being presented to the board today: to determine whether or not to release it to the public and what, if any, further action will be taken in light of the findings.

The report, which I covered in depth yesterday, apparently assigns blame to Dimon for poor oversight of the chief investment office in London, where Bruno Iksil -- the London Whale himself -- worked. Financial Times is reporting today that JPMorgan's board will officially dock Dimon's 2012 pay for his role in the debacle.

For Q4, expect more details on the continuing clean-up of the London Whale mess -- and perhaps a few minor, unstunning revelations -- but don't expect further radical changes in top management.

2. More mortgage-related revenue and profit
The housing market is on the rebound, so it seems, which is a big deal for banks that are in the game.

According to the National Association of Home Builders, housing and housing related services historically contribute up to 18% to U.S. gross domestic product.  And with Ben Bernanke's third round of quantitative easing -- designed specifically to boost housing by way of monthly Fed purchases of mortgage-backed securities -- going strong, it would appear there's money to be made in home lending in 2013, just as there was in 2012.

And which JPMorgan got a healthy chunk of: In the third quarter of 2012, JPMorgan made $50 billion in home loans, which was a year-over-year increase of 29%. This is in stark contract to Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) , both of which -- gun shy after getting so badly burned in the housing bubble and subsequent crash -- are pulling back on home lending just as the market is turning around. Well, their loss is JPMorgan's gain.

For Q4, expect to see JPMorgan continue its strong showing in the home-lending line of business.

3. More lending overall
For the third quarter of 2012, lending was up across the board, not just in home lending:

  • JPMorgan's commercial lending unit had record revenue.
  • Credit card sales, by volume, rose 11% year over year.
  • Profits were up 12% for auto lending as well as credit card services.

With interest rates about as low as they can go without actually being in the negative, the U.S. economy experiencing slow but seemingly steady growth, and the unemployment rate edging down every so slightly, people are beginning to spend again. And this being America, that means buying on credit.

In Q4, look for JPMorgan to continue to capitalize on this trend. And with the hand of Dimon on the wheel -- a famously risk-averse one -- look for it to be done right.

Final Foolish thought
With any luck, by this time tomorrow we may be hearing the final chapters of the Tale of the London Whale, and instead basking in happy, forward-looking thoughts along with steadily rising bank revenue and profit -- all blessedly boring and frightfully mundane things, the way it used to be for bank investors. 

While you're in the JPMorgan mood, take a minute and check out a new Motley Fool report on the House That Dimon Built. You'll learn where the key opportunities for the superbank lie, where its core growth will come from, and the potential business risks. You'll also get an analysis of its leadership team. For instant access click here now.


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