The Zacks Analyst Blog Highlights: JPMorgan Chase, Morgan Stanley, Discover Financial Services, MasterCard and Visa

Sep 15, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 15, 2011 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JPMorgan Chase & Co. (NYSE: JPM), Morgan Stanley (NYSE: MS), Discover Financial Services (NYSE: DFS), MasterCard Incorporated (NYSE: MA) and Visa Inc. (NYSE: V).


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Here are highlights from Wednesday's Analyst Blog:

JPMorgan Expects Lower Q3 Revs

JPMorgan Chase & Co. (NYSE: JPM) anticipates its Investment Bank, Asset Management and Corporate/Private Equity segments to post lower or negative revenues sequentially in the third quarter of 2011. This was stated by Mr. Jes Staley, JPMorgan's head of investment banking, at the Barclays Global Financial Services Conference.

Mr. Staley commented that JPMorgan's trading revenue would drop 30% in the third quarter from $5.5 billion recorded in the second quarter. The main reason behind the probable drop is the increased market volatility witnessed in August after Standard & Poor's downgraded the U.S. credit rating. The continued sovereign debt concerns in Europe, along with worries regarding the double-dip recession in the U.S., also add to the woes.

Further, JPMorgan expects its investment banking fees to plunge in the current quarter as debt and equity offering have slowed down and there are lesser merger and acquisition (M&A) activities. According to Mr. Staley, investment banking fees would be approximately $1 billion in the third quarter compared with $1.9 billion in the prior quarter and $1.5 billion in the prior-year quarter.

JPMorgan also anticipates its Asset Management segment to post lower revenues as a result of lower equity market activities. Besides, the company's private equity business is expected to report a loss of about $100 million, while its corporate business is likely to register modestly lower revenues.  

JPMorgan will also take in to consideration additional litigation charges in the current quarter as the company tackles claims over its mortgage lending and mortgage securities businesses.

However, Mr. Staley stated that JPMorgan is not much concerned about its exposure in European loans. The company has about $14 billion of exposure in Portugal, Ireland, Italy, Greece and Spain, including loans and derivatives contracts.

Besides Mr. Staley, Morgan Stanley's (NYSE: MS) Chief Financial Officer (CFO) also commented at the same conference that even Morgan Stanley was forced to take lower risk in its trading business in the current quarter due to the market turmoil.

We believe the significant volatility in stock and bond markets are preventing the investors from taking undue risks, thereby leading to reduced trading revenues for the banks and financial institutions. Furthermore, the Basel III capital requirements and regulatory provisions of the Dodd-Frank Act would also start affecting the banks financial results in the near term.

Currently, JPMorgan retains its Zacks # 3 Rank, which translates into a short-term 'Hold' rating. Also, considering the fundamentals, we are maintaining a long-term "Neutral" recommendation on the stock.

Discover Charge-offs Hit New Low

On Monday, Discover Financial Services (NYSE: DFS) declared its credit card charge-offs for the month of August 2011 through a regulatory filing. The company recorded a total charge-off of only $50.8 million, or 3.6% of balances on an annualized basis, down from $54.4 million or 3.83% in July 2011. This is the lowest figure since the beginning of the economic recession a couple of years ago.

The credit card defaults of Discover have been steadily improving over the past six months, leading to a gradual decline in the charge-off rate. Credit card companies write off loans if they are six months past the due date.

In July, the company's charge-off rate had gone below 4% for the first time since the economic recession. On the other hand, the highest charge-off rate ever experienced by Discover was 9.11% in February 2010. Currently the company has one of the lowest charge-off rates in the card industry and competes with other card companies like MasterCard Incorporated (NYSE: MA) and Visa Inc. (NYSE: V).

The delinquency rate, i.e. the rate of delay in payments by 30 days or more, also hit the lowest since the recession in August 2011. The figure declined to 2.49% of balances on an annualized basis in August from 2.6% in July 2011.

The declining defaults are a result of the improving financial situation of US citizens. As they are gradually recovering from the after-effects of recession, they are trying to reduce their credit card debts. As per the figures provided by the Federal Reserve, total card debt has declined by 17% since 2008. Apart from the payments made by card holders, the figure also includes the write-offs made by card companies, amounting to $75 billion.

Currently Discover carries a Zacks #2 Rank, implying a Buy rating for the short term. The company is scheduled to release its earnings before the market opens on September 22, 2011.

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