JPM Misses Top And Bottom Line, Slammed By Collapse In Mortgage Origination, Slide In Fixed Income Trading
So much for the infallible Mr. Dimon.
Moments ago, JPM reported Q1 earnings which missed across the board, driven by the now traditional double whammy of collapsing mortgage revenues - the lifeblood of any old normal bank - and fixed income trading revenues - the lifeblood of new normal banks. Specifically, JPM reported revenues of $23.9 billion, well below the expected $24.5 billion, matched by a reported earnings miss of $1.28, down from $1.59 a quarter ago (and down $0.02 from Q4, 2014), also missing consensus estimates of $1.38.
The breakdown was as follows:
However, recall that as Zero Hedge first reported last quarter, JPM recently jumped on the FVA bandwagon, to wit:
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.
... which means one has to look at revenue on both a GAAP and non-GAAP basis. Sure enough, the company's non-GAAP revenue, reported quietly in the footnotes, was $1.1 billion less than the non-GAAP print.
Fine, revenue you can't fudge as easily. But what about EPS - after all the firm should be quite able to boost "earnings" by taking out another abnormally sized loan loss reserve release. It is here that we observe something curious: while last quarter JPM generated $1.3 billion in "bottom line earnings" from loan reserve releases, this quarter the number was down to a far smaller print, as JPM took only $417MM in releases, down substantially from $1.2 billion a year ago. Considering JPM still has a total reserve of $15.8 billion it was strange why it didn't take out more - it is almost as if Jamie Dimon wanted to miss the bottom line!
Going back to the firm's actual operations, here is where the bulk of the pain came from: mortgages, or rather the lack thereof.
Of note here: Mortgage Production was a disaster with mortgage related revenue of only $292 million, and net loss of $58 million.
As JPM says, "Revenue 76% lower YoY, primarily on lower volumes; originations down 68% YoY and 27% QoQ"
Nothing better in the servicing division: "Mortgage Servicing pretax loss of $270mm, down $169mm YoY"
The culprit: mortgage originations, which tumbled from $52.7 bn in Q1 2013, and $23.3bn in Q4 2013, to just $17.0 billion as the US consumer continues to not want to buy houses on credit. Which also means that as JPM further writes, "Headcount down ~14,000, or ~30% since the beginning of 2013, and ~3,000 QoQ."
Oh well, at least those "all cash" Chinese and Russian buyers are happy, if not so much JPM's soon to be terminated mortgage bankers.
Tied with this is the fact that as we expected, JPM's market-based Net Interest Margin continues to decline, hitting a new record low of just 0.84%. The recent uber flattening in the yield curve will certainly not help.
And then, looking at the Investment Bank, things are just as bad if not worse:
Yup - fixed income markets, that key profit center for every bank - crashed by $1 billion Y/Y to only $3.8 billion as even equity market revenue dropped by $45 million to $1.3 billion. Also note the average VaR which tumbled from $62mm to only $42mm - as if Jamie is telling the traders to take zero risk.
Which ties in with the last slide - remember the London Whale operation, the CIO, which was a revenue and income goldmine for so long until it blew up? So much for that.
Full earnings presentation below.
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