Citibank Earnings Preview Altered by JPMorgan... BofA In The Wind (C, JPM, BAC)

When J.P. Morgan Chase & Co. (NYSE: JPM) beat earnings and gave a solid report on capital ratios, loan loss reserves, credit metrics, and even on its top-line revenues.  This seems to be damaging rather than helping Citigroup, Inc. (NYSE: C) and its earnings expectations on Friday morning.

We have not seen any official estimates change yet but the bias is now that Citi will have to do even better than it would have just to keep Main Street and Wall Street happy.  We have estimates at $0.97 EPS on $19.94 billion in revenues as the Thomson Reuters consensus for estimates.

The other damaging issue is that Jamie Dimon runs what is the safest of the too big to fail banks, and it is trading at a discount to book value today.  That is a poor evaluation of a sector’s character, but if the best bank out there trades at a discount then why should the junky banks get to trade above or even close to the same discount?  Dimon put the book value at $44.77 versus $43.34 one quarter ago and up from $40.99 a year earlier.  After a 2.5% gain today, J.P. Morgan shares are at $40.55.

Citi’s stated book value last quarter was $58.50 and it listed a tangible book value of $46.90.  At $39.33, Citi’s 52-week range is $36.30 to $51.50 if you adjust for its recent reverse stock split.  As long as J.P. Morgan trades at a discount to its book value, how can that help make the argument that some reasonable to discount Citigroup’s book value should be the floor?  It implies that it should be the ceiling.

That spells an even worse case for Bank of America Corporation (NYSE: BAC) next week.  After its multi-billion dollar settlements, it seems more than fair to guess that book value will head lower rather than higher.  As we noted last quarter, “Some still-bullish investors may heed that $13.21 book value as a safety net, but the bears may argue that the figure should act more like a ceiling.”  Bank of America shares just hit a new 52-week low today of $10.11, down more than a third from its 52-week high of $15.72.

JON C. OGG