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Tickers in this Article: JPM, BAC, C, RF, GS
On Thursday, banking behemoth JPMorgan Chase & Co. (NYSE:JPM) announced first-quarter results that weren't as dire as analysts were predicting. Investors are still determining if this was a sign of better days to come or they should continue to prepare for the worst. At current share price levels, the odds may be on the former.

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Recent Results
Total revenues grew 45% to $25 billion as the acquisition of WaMu significantly expanded JPMorgan's deposit base, branch network, and credit card operations. JPMorgan is still integrating the purchase and detailed that it has rebranded 708 branches and 1,900 ATMs. Management also touted "record revenue and net income" in the investment banking division, which was boosted by 63% growth in debt underwriting fees. Overall, the division posted a 20% return on equity (ROE).

Total company ROE fell to a lowly 5% as provisions for credit losses rose 18% to $8.6 billion to shore up capital in areas such as credit cards and retail financial services. Total credit reserves ended the quarter at $28 billion, yet CEO Jamie Dimon conceded further reserves might be needed as the year progresses – if the economy fails to recover. These charges pushed net income down 10% to $2.1 billion, or $0.40 per share, but this was still firmly ahead of analyst projections of $0.32.

Quarter-end book value was $36.78 per share. JPMorgan's share price ended the day of the earnings release at $33.13, and have trended up from below $16 per share back in early March. As things stand currently, the stock slid below $30 per share with the overall market on April 20, 2009 and is below book value. (The key to survival for many financial institutions will be to efficiently serve a global customer base, read The Globalization Of Financial Services.)

The Bottom Line
Despite the near-term run in the shares, JPMorgan is worth keeping an eye on. This quarter's earnings would have been more than seven times higher, had credit loss provisions not been needed. Clearly this isn't possible, given consumers continue to default on their mortgages and credit cards and many commercial loans remain on shaky ground. But it does demonstrate the bank's earnings power once the economy returns to more solid footing.

Analysts on average currently project $1.46 in full-year earnings per share according to Thomson Financial Networks. This places the forward P/E at a pricey 23.2 times, but isn't overly reliable considering that there is considerable earnings upside potential if default trends reverse course. Earlier in the week, Goldman Sachs (NYSE:GS) and Regions Financial (NYSE:RF) reported results above expectations, demonstrating that the market may have become too pessimistic on the prospects of major financial players.

The overall health of money-center banks will be put to the test as Bank of America (NYSE:BAC) and Citigroup (NYSE:C) both report earnings results in the next few days. As for JPMorgan, it ended the quarter with a Tier 1 capital ratio of 11.3, confirming its status as one of the stronger players in the group. And its share price remains appealing as it's still trading below book. (Learn more in The Industry Handbook: The Banking Industry.)

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