JPM Beats On Loan Loss Reserve Release Despite Drop In Trading Revenues And NIM, Surge In Non-Performing Loans

Tyler Durden's picture

There is a lot of verbiage in the official JPM Q3 Earnings press release which directs to a bottom line number of $1.40, or $5.7 billion on expectations of $1.24, with revenue of $25.9 billion on expectations of $24.53 billion. The primary reason for the lack of disappointment: no major losses in Corporate from CIO, with corporate generating $221 million in Q3, up from a loss of $(1.777) billion in Q2. And then come the adjustments:

  • $900 million pretax benefit ($0.14 per share after-tax increase in earnings) from reduced mortgage loan loss reserves in Real Estate Portfolios
  • $825 million pretax incremental charge-offs ($0.13 per share after-tax decrease in earnings) due to regulatory guidance on certain residential loans in Real Estate Portfolios
  • $888 million pretax benefit ($0.14 per share after-tax increase in earnings) due to extinguishment gains on redeemed trust preferred capital debt securities in Corporate
  • $684 million pretax expense ($0.11 per share after-tax decrease in earnings) for additional litigation reserves in Corporate

Then there is a DVA loss of $211 MM in banking. Net-net, after taking into account all one-off adjustments, the Q3EPS was really $1.26. But for all the data fudging, and attempts to make the reported EPS non-comparable to the expected one, following an avalanche of one-time adjustments, the bottom line is this: revenues from trading dropped both sequentially and Q/Q while banking expenses rose, Net Interest Margin dropped to a new record low, even as the firm too a major $967 million loan loss reserve release on its loans to $22.8 billion, even as its total Non-Performing Loans rose by a whopping $1.3 billion to $11.370 billion, the largest quarterly jump in years! Just how JPM can justify such a major contribution to earnings coming from loan losses when NPLs have soared is unclear to anyone with a frontal lobe.

Watch the declining blue number even as the green number (for lack of red ink perhaps?) is now solidly rising,

The JPM bottom line summarized:

Thinking the firm generated any money from actual trading in the quarter? Don't. The Revenue from Trading decling by $489 million from Q2 and by $92 million from a year ago to $6.3 billion, even as expenses increased by over $100 mm both sequentially and Y/Y. The biggest collapse, and this will come as no surprise to anyone, was from a plunge in equity market revenues.

So if trading isn't making money, perhaps at least the core banking service - Net Interest Margin - is? Nope. As the chart below shows, thanks to the Fed's Financial Repression, NIM dropped to a fresh all time low of 2.92%.

Finally, for those curious, net peripheral European exposure  was reported at $12 billion.

Full earnings presentation below.


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GolfHatesMe's picture

Algos have no frontal lobe - Rippin up.

Richard Chesler's picture

Loss reserves are suspended until the puppet-in-chief is re-elected.

Imminent Crucible's picture

"Just how JPM can justify such a major contribution to earnings coming from loan losses when NPLs have soared is unclear"

Unclear? Not at all. Did you already forget that Ben has promised to BUY all of JPM's disintegrating MBS at face value? $40 BILLION every month until unemployment on Wall Street goes to zero. JPM can release every last dollar of reserves against NPLs because they won't suffer any losses on that paper--WE will.

GolfHatesMe's picture

Also did not count NPL from one very large state.

Cdad's picture

So...if I have this right...the business continues to decline as the loans on the book resume deterioration...and interest disappears...while the firm goes for the Hail Mary Spanish and Italian debt move?

Great...give me lots of that...especially after three and a half months of stock markup...and right here as the DOW is slowly folding up its tent.

Yeah peak garbage. 

jaffa's picture

In an interest only loan you never pay principal down at all, just pay interest only. when the loan term is over, you still owe the principal in full. These work best when you're taking out a short term loan to, say, rehab a house that you intend to sell for more than you bought it for, so that you can reap the profit. These loans aren't for the average person. These loans are for various terms, but usually short term and are almost always fixed rate. Thanks for sharing.
Bridging loans

The Axe's picture

Jamie   just needs to feed the machine headlines....dont look behind the curtain Tyler!!

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

So what happened to Bill Murphy Le Metropol Cafe's JPM 'Market Manipulation Scandal Goes Mainstream'


I'm still waiting.

JPM Hater001's picture

Tin Foil Hat says Check what they sold per Comptroller/Bernanke meeting.  They are in the 3-6 month window and this is all predictable.


Cash and othere assets are going up.

razorthin's picture

Carrots are divine you get a dozen for a dime, it's maaaaaagic.

Cursive's picture

$900M from reduced loan loss on certain mortgage securities in real estate portfolio is a direct taxpayer benefit from the Fed's new MBS QE3 program.  Jamie can thank BernanQE for that.  And the declining loan loss reserve would be a farce, but since everyone thinks the Fed will just buy any and all crap (including $12B of peripherial European bonds when necessary), it's a fortress balance sheet.

alter ego's picture

So, my friends with this you can say that JP Morgan has a open back door with the Fed.

LongSoupLine's picture

Just how JPM can justify such a major contribution to earnings coming from loan losses when NPLs have soared is unclear to anyone with a frontal lobe.


Frontal lobe implies "executive functioning".  This is absent in an algo based "market".

On that note...futures up.  The casino is open.

Jim B's picture

Result oriented accounting! LOL!

PUD's picture

Every penny JPM "makes" is a penny you don't. It is the height of absurdity to cheer for bank profits knowing that they either beat you in a trade, committed some crime that they will pay a token penalty for or enslaved someone under the yoke of debt at obscene spreads thanks to FED (taxpayer) support. I look forward to the day they all cast shadows on the streets whilst dangling from lamp poles

Archimedes's picture

So according to the first chart they have about 4 more years worth of Loan Loss reserves to use as phantom profit. on!



youngman's picture

So this is the 20%.......


GetZeeGold's picture



.......only if you play your cards right.


monopoly's picture

The one big mistake this country made, or I should say "the inmates" in Congress that pretend they are Representatives of the Citizens is letting these banks get so big. How could we be so stupid to screw that up. Look at those numbers. Scary.

vote_libertarian_party's picture

Maybe they reduced the loan loss reserves because they know the Fed is buying all of their MBS losers until the inventory is gone.

SilverMoneyBags's picture

These numbers are soaring because Chase is finally processing some of these loans through the OCC Article 7 Audit. 

Grand Supercycle's picture

Overextended equity/commodity/gold/silver daily charts still indicate impending correction.