Deutsche Bank Cuts Estimates, Price Target On JPMorgan Chase (JPM) On Loan Losses
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Deutsche Bank said the biggest issue U.S. banks will face in 2009 is loan losses. The firm expects commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. They said JPMorgan Chase (NYSE: JPM) could be one of the worst hit and lowered estimates on the stock today to reflect this view.
The firm lowered 2009 EPS estimates on JPMorgan Chase by 65 cents to $2.05 and lowered 2010 EPS estimates by 35 cents to $2.20, which mostly reflect higher loss rates and lower revenues than previously modeled. Deutsche Bank also lowered its price target on JPMorgan from $37 to $34.
Analyst Mike Mayo said, "Worsening economic trends should put additional pressure on JPMorgan Chase's loan portfolios (esp. cards, home equity, and residential and commercial mortgage) as well as the banking industry in general. Specifically, we expect commercial bank loan losses to increase from 1.5% (3Q08) to 3% by the end of 2010. Reasons include an increased percentage of loans with higher losses (construction, credit cards, home equity), greater consumer leverage, and sooner problem recognition by banks. See our January 2 industry report: “Issue in 2009 is loan losses."
Mayo said despite earnings challenges, they expect JPMorgan to gain share in many areas (especialy capital markets). The firm rates the stock a Hold.
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