7/16/2012 7:45 PM ET|
Disgusted with JPMorgan
The stock ran up despite its huge trading loss -- a flashing neon sign that world's global banks are too big to manage and too addicted to risk.
Shares of JPMorgan Chase (JPM) rose almost 6% on Friday on news that the bank's loss from its London Whale trade was just $5.8 billion and that revenues of $22.89 billion were above the Wall Street estimate of $21.7 billion.
Frankly, I find the jump in JPMorgan Chase stock deeply disturbing. It's yet one more sign, if you need one, of exactly how cynical Wall Street has become and of how corrupt the world's banking system is.
I can explain the rally in JPMorgan shares. It's the logic of that explanation that I find so profoundly troubling. Especially in the context of the global financial crisis -- remember Lehman Brothers, Countrywide Financial (acquired by Bank of America (BAC) for $4.1 billion in 2008), and American International Group (AIG), rescued with $85 billion in loans by the Federal Reserve and the U.S. Treasury -- and following so closely on the heels of news that Barclays (BCS) and other global banks had rigged the Libor, or London Interbank Offered Rate, interest rate benchmark.
So many investors have thrown up their hands in disgust and now won't invest in the financial markets at all because they think they're corrupt and rigged. Or, they invest cynically, figuratively holding their noses. Who can blame them? Not I, certainly.
Think about the logic that explains the 6% gain in shares of JPMorgan Chase.
First, there's the argument that the $5.8 billion loss from the disastrously complex London Whale trade (put on by an employee in London operating out of the bank's chief investment office) shouldn't count because it's a one-time problem.
This is the position taken by JPMorgan Chase CEO Jamie Dimon, who said, in announcing the bank's second-quarter earnings that the results showed "really good underlying performance."
Kind of hard to see, actually. Even if you look past that huge loss.
A closer look at JPM's earnings
Reported earnings for the second quarter came in at $1.21 a share, a drop from the $1.27 a share reported for the second quarter of 2011. Revenue fell by 16.5% from the second quarter of 2011. Further breaking down the income statement, revenue from fixed income and equity markets dropped to $4.54 billion in the quarter from $5.36 billion in the second quarter of 2011.
The bank did much better in bread-and-butter banking than it did on the investment banking and trading side. Revenue from retail banking, which includes home loans and checking, rose to $7.9 billion in the quarter from $7.1 billion in the second quarter of 2011. Income for this unit climbed to $2.3 billion from $383 million. Mortgage fees and related revenue rose to $1.6 billion from $595 million. Net income climbed to $931 million from $286 million in the second quarter of 2011.
But even in JPMorgan Chase's banking business, there were signs of trouble on the horizon. Net interest margin -- the difference between what the bank makes on its loans and what it pays to raise cash in the financial markets -- dropped to 2.47% in the second quarter from 2.72% in the same period last year.
All this good news matters only if you agree with Wall Street accounting. There was the assumption that the brutal $4.4 billion pretax loss on the London Whale trading position was a one-time event. And the bookkeeping that offset much of that loss with a $1 billion pretax gain in the securities in the chief investment office portfolio, a $2.1 billion pretax benefit from a reduction in loan-loss reserves, an $800 million gain from debit valuation adjustments and a few other items.
If you exclude all these accounting adjustments, JPMorgan Chase earned 67 cents a share. That is well below the 76 cents a share projected by Wall Street analysts.
Wall Street has played fast and loose with bank earnings since the financial crisis, dismissing some losses as one-time events and counting some gains that I'd call one-time as part of a bank's regular revenue stream. That's exactly what Wall Street analysts and the stock market seem to have done again this quarter with JPMorgan Chase.
To me, that seems profoundly wrong. If the financial crisis has taught us anything, it's that the big global investment banks have made risky trading with their own money -- the sort of activity that resulted in $5.8 billion and counting in losses from the London Whale position -- a core part of their business model. Goldman Sachs (GS) does it. Citigroup (C) does it. Bank of America does it.
The gains and losses from those activities may be lumpy and may swing from plus to minus with any quarter, but they can't be discounted as one-time events. The big global investment banks are engaged in activities like this every day. To say that JPMorgan Chase's core banking business is doing fine -- and ask investors to somehow consider trading losses as outside the core -- profoundly misrepresents the risk of the current investment banking model.
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Who is the largest recipient of Food Stamp money in America? JP Morgan, they get a cut for every transaction. They should offer this service for free as a Community Service if they can make so much money. Also see who get the most money in unemployment benefits!
yep its sad that the opinions of the market play everyone. You dont normally see a spike in the market from bad news unless it is spiking down. The entire market lost credibility just once more but how many times have we seen this? I am sure the bottom line is devaluation and one day someone who thinks they are in the triple digit IQ club is going to be standing there with alot more of those legends in their own minds when someone who just does the audit under them has to tell them the truth.
I share a berth in an above IQ area . It is the ability to look at large numbers and figure out the bottom line to a generalization point. If the media does not quit devaluing the resources we have which is spawning @ssholes who think they can match the tax assessors audit of properties to the actual worth of the property then there will be little solid capital to inject back into our economy. Banks are taking the forclosures and turning them back for less than 50cents on the dollar to people who really dont have the cash either but are daring and have credit. This is causing the people who do own property that is worth quite a bit more to live on a daily basis being insulted by other people who listen to this downgrade. I had a woman tour my house and when she couldnt refute the place it was nor the features she told my agent that perhaps if I ripped out the carpet and painted the plywood that it might sell because ? I never found out why but apparently its because it was dated shag carpet. She also had the gall to tell me that properties were selling for the same price that the tax assessor appraised based on the taxes. I have an actual appraisal that was taken during the worst time that has recovered if I were to have it done now at least 50 grand over what it was and that appraisal is about 130 grand higher than my tax purpose market assessment. This latest confrontation was the direct result of the media downturning property worth. There are no more excuses to devalue properties. The s****ing carpet bagging morons who ran around teaching scam techniques to everyone has passed. No one who owns properties is going to give it away to any of you strays still running around trying to steal homes. I am tired of hearing one story about how it has nothing to do with property worth this tax devaluation and then have a licensed real etstae agent trying to buy my house throw it right in my face using that devaluation as a tool to try and buy my house for 100 grand lower than I am selling it which is 250 grand below what it was worth just a few years ago and almost 700 thousand dollars below what it was worth a few years before that.
We all still deal with the banks for loans but most of us know just exactly who they are and what immoral crap they are peddling. My whole problem started when two little executive pieces of trash were going to get married and had their dream home built for almost 700 grand in my neighborhood. Then these supposed adults got ticked off at each other and had a divorce leaving the bank sitting there with the debt on the house. The bank dropped this brand new home for 450 grand at auction effectively starting the tumble of property values in my neighborhood. I think the government needs to put a leash on them to stop them from destroying the USA. You see its clear to me they have a gambling problem. You know its a disease. end/prophecy not rant.
From Mr. Jubak's article.=Frankly, I find the jump in JPMorgan Chase stock deeply disturbing. It's yet one more sign, if you need one, of exactly how cynical Wall Street has become and of how corrupt the world's banking system is.
Mr. Jubak nailed it. Way to go Jim, we need more media coverage on this huge problem, that will bring the US, down to its knees.
Food for thought, which presidential candidate is going to bring us out of this mess? The ineffective Obama, or Romney, a guy that is a lot closer to these Bankers, than he is to the common man.
If you want to get more disgusted, check out the Senate Report on scribd - titled:
U.S. Vulnerabilities to Money Laundering,Drugs, and Terrorist Financing:
HSBC Case History
Terrific assessment, Jim. Now the big question is-- how do we divest them? No bank in America is worth what we will all pay for their folly in coming generations. You were- kind- to JPM. There was no discussion on their involvement in the LIBOR scandal, Corzine's Fund, massive Euro exposure that has ZERO chance of being anything but loss and most of all- Jamie's lie about the "whale" because it wasn't just an investment-gone-wrong, it was a compromise in derivatives contracts, that will continue to deliver losses.
We really have no other choice but to- Close the banks, reconcile them, terminate and bar personnel from re-entering the sector, prosecuting criminal activity, regulating and re-opening only with firm and viable oversight. It's a bushel of rotten apples. Do you invest time and effort into picking out one or so maybe good ones, or throwing the basket and all in the dumpster? What are banks to 99% of Americans today? With both Visa and Mastercard settling on fee-fixing, the trickle down to banks comes next. That AGAIN would be Chase.
A wise investor once gave me great advice. Why invest in bank stock when there are so many perfectly good companies that actually produce something?
It's all smoke and mirrors with these outfits. The last four years, smoke from a crack pipe.
But they do have the politicians on their side, always bailing them out.
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