JPM will kick off earnings season for financials tomorrow, and the whispers seem to be that the quarter is going to be pretty good. Hopefully JPM will show signs that the banking system is continuing to heal and that profitability is returning. Whereas a couple of years ago investors would have had a laser like focus on capital and asset quality metrics, this quarter the metrics that I'll be paying close attention to are (among others): Return on Equity, Loan Growth and NIM. Below are charts of how these have trended for the banking system over the last decade.
While asset quality has gotten a lot better for the aggregate portfolios and charge offs have slowed to pre-recession levels, banks are still holding a lot of non-accrual assets in their residential books. It will be important to see if the system is taking the opportunity provided by improving housing prices to finally clean their books completely. This will have major implications for future lending.
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