JPM Reports $1.28 EPS On $1.15 Consensus... However $0.29 Is From Reduced Credit Card Loan Loss Reserves

Tyler Durden's picture

And so the loan loss reserve accounting game continues. JPM just reported earnings of a solid $1.28/share for Q1 2011, generated by net revenue of $25.8 billion (a decreased of $2.4 billion from a year ago). This would have been enough to push the stock substantially higher... if only $0.29 of this "beat" was not from a purely accounting benefit from reduced credit card loan loss reserves. Now the only question is how much of this credit card improvement is from credit card holders paying their credit card cards instead of their mortgage (and with a $50 billion annual squatters rent benefit this is not a trivial question). Considering that JPM announced a $650 million expense for estimated costs of foreclosure-related matters our guess is "a lot." Per Jamie Dimon: " "Retail Financial Services demonstrated good underlying
performance, while we continued to invest in building branches and
adding to our sales force. However, this performance was more than
offset by the extraordinarily high losses we still are bearing on
mortgage-related issues.(a) Unfortunately, these losses will
continue for a while. Rest assured, we are fully engaged in fixing our
problems and addressing our mistakes from the past, and we will strive
to build the best mortgage business going forward.""

More from the release:

  • Investment Bank reported strong earnings; solid results from other businesses
  • Retail Financial Services demonstrated good underlying performance; results offset by elevated credit costs and other mortgage-related costs
  • Fortress balance sheet strengthened: Basel I Tier 1 Common1 of $120 billion, or 10.0%; estimated Basel III Tier 1 Common1 of 7.3%; credit reserves at $30.4 billion, coverage ratio at 4.10% of total loans1
  • Increased quarterly common stock dividend to $0.25 per share; authorized new $15 billion multi-year common stock repurchase program, of which up to $8.0 billion of common stock repurchases is approved for 2011
  • First-quarter results included the following significant items:
    • $2.0 billion pretax ($0.29 per share after-tax) benefit from reduced credit card loan loss reserves
    • $1.1 billion pretax ($0.16 per share after-tax) loss from mortgage servicing rights asset adjustment for increased costs
    • $650 million pretax ($0.10 per share after-tax) expense for estimated costs of foreclosure-related matters
  • Over $450 billion in new and renewed credit provided to and capital raised for consumers, corporations, small businesses, municipalities and not-for-profits in the first quarter of 2011
  • Enhanced programs to help military and veteran customers, including a commitment to reduce mortgage pricing and increase mortgage loan modifications, jobs, training, and homeownership assistance
  • Loan modifications of 1,098,000 offered and 324,000 completed since the beginning of 2009
  • Added 16,300 employees over the last twelve months, including more than 9,800 in the U.S.

Full release here

JPM has decided that the total allowance for credit losses can be allowed to decline from $3.1 billion to $1.8 billion in one year: a 43% decline!

And some trading data: JPM reported a 83 VaR for Q1, higher from both Q4 and Q1 2010.

Earnings presentation which has little discussion of key items associated with loan loss provisioning and write-offs:

1Q11_Earnings_Presentation_FINAL