JPM Hammered By Massive $9.2 Billion In Legal Expenses, Posts First Loss Under Dimon; Takes $1.6 Billion Reserve Release

Tyler Durden's picture




 

So much for the JPM "fortress balance sheet." Moments ago the bank which 18 months ago stunned the world with the biggest prop trading loss in history, just reported its first quarterly loss under Jamie Dimon, missing expected revenue of $24 billion with a print of $23.88 billion, but it was net income where the stunner was in the form of a $0.4 billion net income. The reason: the fact that from the government's best friend, Jamie Dimon has become the punching bag du jour, and having to pay $9.15 billion in pretax legal expenses, the biggest in company history.

Quote Jamie Dimon:

While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense. We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen them. While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters.

Speaking of "strong underlying performance", considering that the other key component of Q3 net income was a whopping $1.6 billion in loan loss reserve releases, one wonders just how truly strong Q3 earnings really were. But of course, this being Wall Street, all negative news is "one-time" and to be added back. Which is why JPM promptly took benefit for all charges, which means adding back the $7.2 billion legal expense and $992 MM reserve release after tax benefit. In short: of the firm's $1.42 in pro forma EPS, a whopping $1.59 was purely from the addback of these two items.

Total loan loss reserves declined by $1.8 billion to $17.6 billion, well above the release taken a year ago which was "only" $1 billion. The problem for JPM is that its pool of eligible loan losses is starting to rapidly dry up, and at the current pace of ~$1.5 billion per quarter, the firm has about three years of EPS-goosing release padding left.

Nonetheless, and certainly for the near term, JPM is quite clear: expect reserve releases to continue padding our bottom line:

Additionally when looking for the "strong" performance, one fails to find it in the Fixed Income Markets line item, where much of the pain was expected to be today, which indeed dropped by $0.3 billion or 8% compared to 2012, down to $3.4 billion, however offset by a modest $0.2 billion increase in Equity Markets to $1.2 billion. Also notable was the drop in the average VaR from $122 in Q3 2012 to just $45 this quarter. More Excel copy/paste errors?

Going back to the firm's unprecedented legal troubles, below is a chart showing the firm's record $28 billion in net litigation reserve additions since January 2010. Expect this number to continue rising. Of note: this may not be enough since as the firm notes there is an additional $12.5 billion in possible losses in excess of reserves for just Q2 and Q3 alone. In other words, expect many more billions in legal losses in the quarters ahead.

Next, for all those predicting a surge in bank Net Interest Margins as a result of the spike in Q3 yields, we challenge anyone to show it to us on the following chart showing that for all intents and purposes, JPM's NIM just dropped to an all time low.

But while the NIM may have dropped, mortgage origination did not increase. In fact, the firm's mortgage production group posted a measly $90MM profit, down $1 billion from the year ago. Luckily for JPM, mortgage production and servicing losses were offset by a $1.25 billion change in allowance which pushed the Mortgage Banking Net income to a positive $705MM - another made up number. More importantly, announces that 11,000 employees in the mortgage group will be laid off.

Finally all those curious what JPM's most recent European exposure is, the chart below should answer the question.

Full earnings release:

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Fri, 10/11/2013 - 07:47 | 4044252 Coldfire
Coldfire's picture

Only $9 billion in legal fees? Pffft. To make an omelet ya gotta break a few eggs.

Fri, 10/11/2013 - 07:50 | 4044264 Au Member
Au Member's picture

Pierpont will be spinning in his grave, hopefully

Fri, 10/11/2013 - 08:04 | 4044293 Zer0head
Zer0head's picture

and how is JPM doing in the pre-hours

only up a dollar or so

Fri, 10/11/2013 - 08:48 | 4044438 Never One Roach
Never One Roach's picture

Lawyers...just doing God's work.

Fri, 10/11/2013 - 09:47 | 4044740 Manthong
Manthong's picture

18 month's ago for the whale debacle??

..seems like just yesterday.

.. helluv'a bank that can handle $15 Billion in losses in a year and a half.

.. maybe not so much as they can borrow all they want forever at almost no expense.

I wish I could do that.

 

Fri, 10/11/2013 - 09:48 | 4044765 MachoMan
MachoMan's picture

being close to the spigot has its perks...

Fri, 10/11/2013 - 09:56 | 4044822 LawsofPhysics
LawsofPhysics's picture

yes, that and mark to fantasy accounting which allows you to turn losses/liabilities into assets.

Fri, 10/11/2013 - 10:02 | 4044857 MachoMan
MachoMan's picture

What kind of boon is mark to fantasy though?  Doesn't everyone know the accounting reports are bullshit?  If you accept that these corporations don't have to comply with the law anyway, and the investing public knows it can't rely on the figures produced by these corporations, then what does mark to fantasy help?  At the end of the day, either they run out of other peoples' money or they don't...  how the money is classified on a balance sheet is irrelevant.

[mark to fantasy is only relevant because it keeps up the illusion that any of these corporations has to actually follow the law].

Fri, 10/11/2013 - 10:03 | 4044862 Buckaroo Banzai
Buckaroo Banzai's picture

$9.2 billion in legal expenses? That is fucking impossible.

At $400/hour that represents 127,840 man-months of legal fees. Or 10,653 man-years of legal fees.

How is that possible?

Fri, 10/11/2013 - 12:44 | 4045592 MachoMan
MachoMan's picture

Double the fee per hour and then bill the same per hour for secretaries, clerks, and associate attorneys, and it's not hard to find 4-6k legal professionals rocking balls @ 50 hours/week, 50 weeks/yr.  I'm also guessing that "legal fees" covers the entire gambit of consultants, experts, and a shit ton of nice restaurants and making it rain at titty bars...  often times, the consultants/experts charge more per hour than the attorneys... 

Fri, 10/11/2013 - 07:57 | 4044277 stocktivity
stocktivity's picture

It's all Bullshit!!!!

Fri, 10/11/2013 - 08:19 | 4044342 Translational Lift
Translational Lift's picture

It's all Bullshit!!!!

I believe that's BULLISH...........Stocks up this AM......

/SARC

Fri, 10/11/2013 - 08:03 | 4044294 aint no fortuna...
aint no fortunate son's picture

Jack Lew better watch out, Jamie may be looking for a part time job soon.

Fri, 10/11/2013 - 08:10 | 4044304 Urban Redneck
Urban Redneck's picture

They should provide a breakdown between actual fees paid and reserves for future legal fees, and more importantly between reserves for future legal fees to firms and penalties to regulators and victims- it would shed insight into one of TPTB and TBTF's favorite legal (gimmick) strategies- spreading the wealth (of fees paid) to intentionally create CONFLICTS OF INTEREST which prevent skilled lawyers at the large firms from taking part in litigation AGAINST a large corporation (and at the many law firms where ethics are not practiced- greed achieves the same outcome). I'm guessing Jamie is slathering the $9B in lube wide and deep amongst the shysters.

Fri, 10/11/2013 - 09:48 | 4044772 MachoMan
MachoMan's picture

You don't want an opposing counsel who knows where all the skeletons are buried...  makes for a rough day in court.

Fri, 10/11/2013 - 07:47 | 4044253 GetZeeGold
GetZeeGold's picture

 

 

Who needs earnings when you have fancy cuff-links?

Fri, 10/11/2013 - 07:48 | 4044255 GMadScientist
GMadScientist's picture

"That's why I make more money than you do." - Jamie

Fri, 10/11/2013 - 07:52 | 4044263 Big Corked Boots
Big Corked Boots's picture

Pretty soon he won't have more money than you.

(One could only hope).

I wish him luck with his welfare-for-laywers program... they have to eat quail eggs and brioche, too.

Fri, 10/11/2013 - 08:30 | 4044383 GMadScientist
GMadScientist's picture

Where do you think they put the result of all those billed hours anyway?

(it's the 1% jerking off the 0.1% jerking off the 0.001%...circle? yes! virtuous? umm, no)

Fri, 10/11/2013 - 08:51 | 4044440 Manthong
Manthong's picture

If I were running things, I would track where every single dollar of those billions really ended up.

Fri, 10/11/2013 - 08:45 | 4044426 Nothing but the...
Nothing but the truth.'s picture

- No worries when your government will always bail you out , no matter what the size of losses.

Fri, 10/11/2013 - 07:51 | 4044262 bulbous_walrus
bulbous_walrus's picture

If you are spending $9bil in legal fees, chances are you are an extremely ethically sound organisation.

Fri, 10/11/2013 - 08:12 | 4044306 GetZeeGold
GetZeeGold's picture

 

 

When in doubt I just look down at my "What would Jamie do?" bracelet.

Fri, 10/11/2013 - 08:30 | 4044388 GMadScientist
GMadScientist's picture

I imagine a big spinner with pie arcs for various actions: "Steal segregated funds." "Slam gold." "Call a congressman."

Fri, 10/11/2013 - 11:24 | 4045198 disabledvet
disabledvet's picture

that just happens to be happening. here we are in the midst of he biggest energy boom in world history and these banks are reporting "the balance sheets from hell." I know this isn't popular here but I really don't want to see these things fail. I'd much rather see them succeed. clearly this is a path to failure however. I can't say I know what the way forward for a turnaround is here...but talk about ethically challenged. would they know elbow grease if they saw it? the hinterlands they all mock are making fortunes...and paying for the Government they need I might add. if this doesn't change at some point that spigot gets turned off for banking which will be organized in a much more rational and transparent way. how much for legal fees again? I mean...really? that's the market moving equities (including their's) higher not the bank. it's suppose to be the other way around.

Fri, 10/11/2013 - 07:51 | 4044267 BandGap
BandGap's picture

Got to spread the wealth around a bit.

Fri, 10/11/2013 - 07:58 | 4044274 Quinvarius
Quinvarius's picture

How else can they fund the subsidized Obamacare folks signing up for basicly free family health care provided by law to lower income groups?  Someone has to pay for that.

Fri, 10/11/2013 - 07:58 | 4044268 Quinvarius
Quinvarius's picture

"That is why I am richer than you".

No.  You are just a Kulak taunting the collectivist bureaucrats.  Like all your moves.  Stupid.  Enjoy both the arbitrary and deserved assrapings they have planned for you and JPM until you step down.  You have aroused both the petty sadists and the social justice boyscout types in government.

Fri, 10/11/2013 - 07:54 | 4044270 buzzsaw99
buzzsaw99's picture

<-- BULLISH

<-- To the FAZmobile

Fri, 10/11/2013 - 07:56 | 4044273 Teddy Tenpole
Teddy Tenpole's picture

 

 

it only gets worse :)

couldn't happen to a nicer bunch

now we know who had to sell all their gold ;)

stick your presedential cufflinks up your ass you abama cock sucking joo banker (yes you jamie)

Fri, 10/11/2013 - 08:29 | 4044375 earnyermoney
earnyermoney's picture

LOL

crime pays.

Fri, 10/11/2013 - 11:36 | 4045236 disabledvet
disabledvet's picture

"until it doesn't." the market has responded...it was the banks that said "buy gold" and well...the price speaks for itself. these folks need to in the immortal words of Jim Cramer "get in the game." REATAIL INVESTORS HAVE CRUSHED YOUR BANKS. the "greater fool" since 2008 has been...well, let's just say private monies are made in the private estate...not Government. "sovereignty" might not flow upward but tax revenues sure do.

Fri, 10/11/2013 - 08:00 | 4044279 centerline
centerline's picture

Wake me up when Dimon and other bankster criminals are convicted for crimes against humanity and dropped into a deep dark hole.

Fri, 10/11/2013 - 08:04 | 4044295 chunga
chunga's picture

Don't ask. Don't tell.

Throw Jamie Dimon down the well!

Fri, 10/11/2013 - 08:00 | 4044280 bdub2
bdub2's picture

meh, good for a buck or two gain so far...should be back to all-time highs a coupla weeks...er, days

Fri, 10/11/2013 - 08:09 | 4044299 bdub2
bdub2's picture

I still can't wrap my brain around how damn easy it MUST be to run a....BANK....a bank!

Take money in, pay .05%. Lend it at 4% plus. add a dash of leverege, corruption and azz kissing, and joila'! You get, "That's why I'm richer than you". True Leadership of the Highest Order.

Fri, 10/11/2013 - 08:50 | 4044437 Ignatius
Ignatius's picture

Do you actually think it's 'easy' to force a congressman to his his knees and push your cock down his throat while demanding a bailout?  Well, let me tell you, it's not. 

Fri, 10/11/2013 - 10:16 | 4044950 MachoMan
MachoMan's picture

Depends on what you're offering in return...

Fri, 10/11/2013 - 08:02 | 4044283 Dubaibanker
Dubaibanker's picture

But...but...but...that Maria Bartiromo said JPM still makes money....ASIDE from legal problems, ASIDE from LARGEST FINE and ASIDE from largest prop trading loss.

http://blogs.reuters.com/felix-salmon/2013/09/29/the-jp-morgan-apologist...

This one is even better: http://www.silverdoctors.com/matt-taibbi-and-sam-seder-skewer-jp-morgans...

And you wonder why CNBC viewership is at 20 year lows......http://www.zerohedge.com/news/2013-08-28/cnbc-core-viewership-drops-fres...

Fri, 10/11/2013 - 08:01 | 4044290 Seasmoke
Seasmoke's picture

 Don't think Jamie was too nice to people on the way up, it's Going to be a long hard fall. 

Fri, 10/11/2013 - 08:26 | 4044370 Vooter
Vooter's picture

Hope that fall follows an Allen Stanford-like trajectory...

Fri, 10/11/2013 - 08:57 | 4044466 Zero Point
Zero Point's picture

Not too long. The angry mob will be running short of rope by then.

Fri, 10/11/2013 - 08:12 | 4044316 falak pema
falak pema's picture

whats a quarterly loss for a company that runs the world. Chicken feed. Anyways paying fines to US govt. is money moved from left pocket that moves to right one as it comes back from ZIRP type handouts next time round. 

Fri, 10/11/2013 - 11:41 | 4045255 disabledvet
disabledvet's picture

those interest rates are rising. that's a MARKET rate. EVERYONE pays for that. do they even know what an oil well is? I mean..."I can count a dozen regional banks who do and are loving it" in case they're wondering.

Fri, 10/11/2013 - 08:15 | 4044317 More_sellers_th...
More_sellers_than_buyers's picture

Something is seriously wrong with this country if anything has to pay 10 billion on legal fees....What the holy hell? 10 Billion? with a B? How many man hours have our trusty governmnet spent? I can't wrap my mind around this.  What a freakin waste.  Either they are beyond corrupt and should be shut down or left alone.  One or the other

Fri, 10/11/2013 - 08:41 | 4044411 kenezen
kenezen's picture

Thank You! What a great comment. Imagine a bank playing by rules that would shame logic because of their sheer stupidity. Add to that a Vampire-like Senate Banking Committee that thinks by draining the life source from one of the two most successful Banks that came through the Crash far better than the rest, is a good tactic!

The real reason is Jamie Dimon warned the committes in 2006 that certain Sub Prime underwriting desired by Government would explode into huge loss if certain economic conditions occurred. Jamie was vocal after the crash about "New Dodd Frank regulations" and made politicians upset. Remember JP Morgan was only one of two banks that came out of The Crash of 2008 unscathed. The Vampires (Senate banking Committes) both republican and Democrat who eat money and live lavish life styles decided to get revenge on this outspoken upstart. It seems that Capitalistic success without worship of the Governmental diety is frowned upon.      

Fri, 10/11/2013 - 08:47 | 4044428 youngman
youngman's picture

Not to big to Lawyer up.......the new bank employee

Fri, 10/11/2013 - 08:13 | 4044318 ParkAveFlasher
ParkAveFlasher's picture

Didn''t Dimon & Co inherit Lehman Bros's massive silver short?  Or is my memory off...is it me or were they just ordered out of the commodity biz?  

Fri, 10/11/2013 - 08:51 | 4044442 ParkAveFlasher
ParkAveFlasher's picture

Up arrowing myself here as I am on my own tangent.   We have 1. Dimon somewhat deposed 2. major fines 3. ordered out of commodities trade 4. blythe out 5. posting of losses ....all within a compressed time frame .... anyone else smelling lehman squared?  

Fri, 10/11/2013 - 08:20 | 4044335 toros
toros's picture

$23B rev - Sorry I got lost in all the numbers, what was it that they build again?

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