J.P. Morgan Discusses Large Cap Banks

J.P. Morgan Chase & Co. is out with a research report on large cap banks, such as Citigroup C. In a note to clients, J.P. Morgan writes, "We expect 2Q to be a moderate quarter from an earnings standpoint. We project modest pre-provision pretax profits (PPP) growth on a linked quarter basis, driven mainly by some seasonal decreases in expenses and modest increase in revenues. Earnings should also benefit from some continued improvement in credit costs, albeit at a slower rate. Capital markets-related fees, notably retail brokerage and trading, are likely to be the weaker areas in 2Q. Given the large increase in unrealized securities gains, we would not be surprised to see some of that monetized but it is not in our estimates. As a result, we would not be surprised to see some banks beat expectations. We expect fundamentals to improve slowly. The banks sector has generally been weak due to lack of interest and looks attractively valued. Any positive catalyst provide a lift to the sector overall. A few banks could stand out because performance relative to expectations where the stock has particularly lagged. expect Citi's relatively better performance in investment banking, and continued improvement in operating metrics at banks such as Regions where there has been a lot of negative sentiment, to benefit those names. USB generally does better in 2Q due to seasonality. Banks look very attractively valued at 0.9x book, 1.2x tangible book and 8.8x 2012E EPS on average."