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JPMorgan Non-GAAP Revenues Beat, GAAP Miss; Earnings Boosted By $1.3 Billion Loan Reserve Release

Tyler Durden's picture


Non-GAAP EPS, sure. But non-GAAP revenues? Up until today one would think that kind of accounting gimmickry is solely reserved for the profitless one-hit wonders of the world, i.e. Tesla, but moments ago we just saw JPM report two sets of revenues: one which was the firm's GAAP revenue, and which was $23.156 billion, and another, far higher number, which was $24.112 billion which JPM described as revenue on a "managed basis" or also known as non-GAAP, and largely made up as they go along.

Here is how JPM explains what it is:

In addition to analyzing the Firm’s consolidated results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total consolidated net revenue for the Firm (and total net revenue for each of the business segments) on a fully taxable-equivalent (“FTE”) basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on consolidated net income/(loss) as reported by the Firm or net income/(loss) as reported by the lines of business.

And some more:

The Firm implemented a Funding Valuation Adjustments (“FVA”) framework this quarter for its OTC derivatives and structured notes, reflecting an industry migration towards incorporating the cost or benefit of unsecured funding into valuations


For the first time this quarter, we were able to clearly observe the existence of funding costs in market clearing levels

As a result, the Firm recorded a $1.5B loss this quarter


Or, in short, trust us - the number is whatever we want it to be (although the fact that JPM now has funding costs in market clearing is disturbing). And it is thus, that JPM just beat revenue expectations of $24.08 billion on a non-GAAP basis, but missed on GAAP. Frankly, does anyone even care what JPM's number are - just fast forward to the next litigation settlement.

Here is how JPM reports its GAAP vs non-GAAP revenue:

So continuing with the other fudges, JPM also reported Net Income of $5.3 billion, or EPS of $1.30, once again on a pseudo-GAAP basis. However, this wouldn't be JPM if it didn't have a boat load of adjustments, and sure enough it did as per the waterfall schedule below. As can be seen, the biggest benefit aside from the $0.32 DVA & FVA (yes, blowing out your CDS is profitable once more), was the $0.27 in litigation charges. Of course, for these to be an addback, they have to be non-recurring instead of repeated, guaranteed every quarter, but once again, who cares.

And since we choose to stick with GAAP, the bottom line is that JPM revenues dropped from $23.7 billion in Q4 2012 to $23.2 billion this quarter, while EPS dropped from $1.39 to $1.31.

Oh, and yes: for the purists, here is the bottom line: of that $5.3 billion in "earnings", $1.3 billion or double the expected (at least from Barclays) $616MM, came from loan loss reserve releases. Accounting magic wins again.

Looking at the firm's key business line (ex prop trading), we see more of the same, as Mortgage production-related revenue cratered by $1.1 billion Y/Y (and $90MM Q/Q) to just $494 million, while production expense ballooned to $989 million. However, when netting out a plunge in servicing costs as well, Mortgage Banking net income rose modestly to $562MM, a $144MM increase Y/Y, if a $143MM drop Q/Q

In the investment bank, things were not much better, as Equity Market revenue continued to drop, while Fixed Income Markets posted a tiny increase Y/Y, even if the bleeding Q/Q continued.

Of note: average VaR continued to drop, and is now down from $106 in Q4 2012 to just $42 in Q4 2013 (down from $45 a quarter earlier).

Finally, for everyone hoping that JPM's Net Interest Margin will finally rise due to the steepening in the yield curve we have partially good news: on a "managed" basis, as defined by JPM, Core/JPM NIM did indeed rise for the first time in years. The partially bad news however, is that the Market-based NIM once again dropped, declining from 0.89% to a fresh record low of 0.86%. Oh well - more non-GAAP measures coming up soon.


Full earnings presentation below.

Your rating: None

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Tue, 01/14/2014 - 09:03 | 4330224 PontifexMaximus
PontifexMaximus's picture

Should be good for a 5% boost on the s&p

Tue, 01/14/2014 - 09:43 | 4330305 aint no fortuna...
aint no fortunate son's picture

and maybe a presidential tie-pin for Jamie?

Tue, 01/14/2014 - 09:03 | 4330225 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

bullish or is it bull shit Jamie

Tue, 01/14/2014 - 09:05 | 4330226 Sudden Debt
Sudden Debt's picture



Tue, 01/14/2014 - 09:09 | 4330233 Sudden Debt
Sudden Debt's picture

Tesla... a friend of mine ordered a tesla and got a 7 month waiting time.


just because they're running at 10% of their "supposed" production limit "so there's room for growth"...

Great product but it's all build and run by engineers so Tesla will die a slow and silent death.

Tue, 01/14/2014 - 09:21 | 4330254 Headbanger
Headbanger's picture

I wish all this electric and hydrogen car bullshit would finally go the fuck away cause who needs these la la land vehicles when we are using less than half the fuel we did just a few years ago?

Besides, Jeff Bozo said he will deliver all we need by drones soon so there's no reason for anyone to own a car anyway.


Tue, 01/14/2014 - 09:11 | 4330236 Dineroguru
Dineroguru's picture

Some of the finest financial sausage in the world-- right at JPM.....good thing we have strong, capable regulators, to help make sure the bank only reports the truth!  The valuation on the derivative portfolio is precise!

Tue, 01/14/2014 - 09:46 | 4330312 eclectic syncretist
eclectic syncretist's picture

The congress has given them the greenlight to basically do any kind of accounting they want to, meaning that if you have anything of value where a big bank can access it you should get out immediiately, because it is impossible to assess risk and only logical to expect that they will tell you everything is wonderful right up until the end.

Tue, 01/14/2014 - 09:12 | 4330240 youngman
youngman's picture

The new world is you can pay fines for breaking the law...but never be held accountable for breaking the law....and people..stockholders...clients..seem to think this is OK...

Tue, 01/14/2014 - 09:12 | 4330241 digitlman
digitlman's picture

I don't, which is why I will never do business with JPM.


It's about all I can do, sadly.

Tue, 01/14/2014 - 09:30 | 4330276 RSloane
RSloane's picture

Ethics in business and taking responsibility for wrongdoings are archaic whimsies at this point. Only profits matter. It is no wonder that Obama referred to Dimon as "the banker's banker". In today's moral climate, he's practically a saint.

Tue, 01/14/2014 - 09:19 | 4330251 DCon
DCon's picture

How about GUAP (Generally Unaccepted) instead of non-GAAP?

non sounds so negative.

Tue, 01/14/2014 - 09:20 | 4330252 esum
esum's picture

our revenues + release of reserves + your money = revenues 

Tue, 01/14/2014 - 09:31 | 4330269 nakki
nakki's picture

Does it even matter what numbers they come up with anymore? The goal posts were moved when they did away with mark-to-market so GAPP or NON-GAPP its all just made up anyways. Why even have accountants? At this point I'm sure a computer model can spit out a number that's just as irrelevant as any human comes up with. Think of the profits then!

Tue, 01/14/2014 - 09:52 | 4330324 eclectic syncretist
eclectic syncretist's picture

Which is exactly why no one should have any money in a big commercial bank.  These banks could be getting raped internally, losing money prodigiously, stripped down by their own employees and embezzeled to nothing, and still report that everything is coming up roses, because the government has said that would be OK. 

Tue, 01/14/2014 - 09:30 | 4330277 Traianus Augustus
Traianus Augustus's picture

I can only think of two things to say in this bizarre world we now live in...

1) What a bunch of BLS.

2) Don't look at that man behind the curtain.

Tue, 01/14/2014 - 09:37 | 4330286 Colonel Klink
Colonel Klink's picture

Seems like the market is about to take a big dump in Jamie's teapot.  Waiting on the tempest tantrum in 3 quarters...2 quarters...

Tue, 01/14/2014 - 09:56 | 4330338 BlueCheeseBandit
BlueCheeseBandit's picture

Beating expectations is easy if you don't have to follow accounting rules. Harder if you do…

Tue, 01/14/2014 - 10:34 | 4330422 ItsDanger
ItsDanger's picture

I think earnings have become useless in measuring a finanical compnay's value.  Better off using a discounted net asset value of some sort.

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