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JPM Results Plagued By Recurring "Non-Recurring" Legal Charges, Stagnant Trading Revenues, Record Low NIM
Earlier today, in a surprising leak, JPM reported another batch of disappointing Q3 earnings well before the scheduled time. The reason for the early report, according to the WSJ, "an inadvertent early release by a third party website Tuesday meant J.P. Morgan’s financial supplement was in circulation hours before the scheduled 7 a.m ET. The statement was later removed from the site. J.P. Morgan said there appeared to have been a problem with Shareholder.com., the investor relations company owned by Nasdaq. Nasdaq didn’t immediately respond to requests for comment." So another Nasdaq glitch, and this time not at all related to the Facebook IPO Snafu.
So back to JPM's earnings which were more of the same.
We don't recall if JPM's legal charges in the past few years are now $20, $30, $40 billion or more, but as of this morning they are X + $1 billion. The reason: JPM will settle its latest market rigging "allegations", this time in FX, and as a result has set aside $1 billion in indulgences to pay its way away from corporate prison. And so in the company's ongoing mockery of the term "one-time, non-recurring", JPM added $1.062 billion in recurring, multiple-time pretax legal expenses, a $0.26 EPS impact to Pro Forma EPS, EPS which also declined courtesy of JPM's repurchase of $1.5 billion in shares in the quarter thus reducing the number of "S".
So what were the bottom line numbers:
- EPS $1.36, a miss to estimate of $1.39
- Revenue (non-GAAP revenue that is): $25.16 billion, better than the $24.43 billion; that said GAAP net revenue was $24.246 billion
- Non-interest expense rose tom $15.8 billion, well above the $14.52 billion expected, and more than the $15.43 billion Q/Q
In table format:
Breaking down the key revenue items, the focus as always continued to be on Mortgage Banking, where we found the following:
- Mortgage Production pretax income of $74mm
- Revenues, excl. repurchase, down 33% YoY; Originations down 48% YoY, but up 26% QoQ
- Headcount down ~6,000 YTD7, on track to exceed prior 2014; guidance by ~1,000
In other words, the mortgage deterioration continues as the only good housing buyer is a cash buyer. But it wasn't just mortgage banking this time. For the first time in a while, Card, Merchant Services and Auto also stumbled: Net income of $1.1B, down 10% YoY
The reason: Credit costs of $846mm, up 26% YoY, driven by lower loan loss reserve releases, partially offset by lower net chargeoffs.
Well, that's not good. In fact, it gets worse:
The provision for credit losses was $902 million, compared with a benefit of $267 million in the prior year. The current-quarter provision reflected a $200 million reduction in the allowance for loan losses and total net charge-offs of $1.1 billion. The prior-year provision reflected a $1.6 billion reduction in the allowance for loan losses and total net charge-offs of $1.3 billion.
In other words, JPM starting to see a notable deterioration in credit quality and as a result is boosting credit loss reserves. Hardly good for a subprime-loan consumer driven "recovery."
And then there was Investment Banking, where things were about as bad as they have been in a while:
Notable: Fixed Income market unchanged from a quarter and a year ago; same with equity market and security services. As a reminder, it is these revenue lines that provide the biggest surprises on the margin. In other words, the trading doldrums in Q3 were just more of the same. Also notable: VaR of $35 is about the lowest it has ever been (net of all the London Whale copy paste fabrications).
And an interesting tangent: "Lending revenue of $147mm, down 58% YoY, primarily driven by losses on securities received from restructured loans" - did JPM get stuck with a bad debt-to-equity conversion that was so subtantial it impacted the entire firm? So it appears.
Then there was Commercial Banking, whose revenue of $1.7B was down 3% YoY and 2% QoQ.
And finally, no London Whale in the house anymore: Treasury and CIO net loss of $30mm, compared to a net loss of $46mm in 2Q14. In fact, as Reuters reported, no prop traders rigging FX any more either:
JP Morgan's chief currency trader in London, Richard Usher, has left the bank, a source familiar with the matter said on Tuesday.
Usher was listed as "inactive" on the UK Financial Conduct Authority's register of approved individuals as of Oct. 6.
Usher, the head of spot G10 currency trading at the U.S. bank in London, had been suspended since October last year. It was unclear at the time whether that was related to the global investigation into allegations of collusion and manipulation in the world's currency market.
Usher could not be immediately reached for comment. An employee at the JP Morgan switchboard said there was no record of anyone called Usher on the worldwide directory.
Usher is also the reason why JPM suffered a $1 billion legal fee this quarter as he was the head of the "Cartel" FX rigging syndicate. "Allegedly" of course.
Going back to JPM's results, while we are happy to report that this quarter JPM only used up $437 in imaginary net income from loan loss reserve releases...
... the bigger problem was that JPM's core NIM for the nth consecutive quarter, declined once again. Why the decline? Core NIM down 5 bps QoQ, largely due to:
Higher cash balances – up $27B QoQ; Lower loan yields. i.e. thanks Fed.
As long as this fails to rise, JPM will simply be unable to post a notable improvement in profits.
Finally, here is JPM's forecast:
- Expect Firmwide adjusted expense to be above $58B for FY14; actual Firmwide expense will be affected by performance-related compensation for FY14
- Expect 4Q14 Markets revenue to be impacted by normal seasonal trends and business simplification
- Expect a $1B+ reduction in allowance for consumer loan losses over the next couple of years, as the credit quality of the portfolio continues to improve
- Expect small negative Production pretax income in 4Q14 – actual results will be market dependent
- Expect 4Q14 revenue to be down YoY, impacted by the absence of one-time proceeds of ~$100mm from a lending related workout
- Expect Servicing revenue to be at or slightly below $600mm in 4Q14, and to continue to decrease in 2015
- Expect FY14 pretax margin and ROE to be below TTC targets
In short: one of these quarters JPM will have actual good, undoctored news to report. Just not now, and probably not under Jamie Dimon's watch, who clearly wants to get the hell out of the sinking dodge.
Full presentation (pdf):
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This should translate into record bonuses at JPM </sarc>
Another sad story is Monsanto. They lost $156M last quarter. Pity, that!
Yeah, just pay the damn fine.....don't even argue about it.
$1 billion in legal fees?!??
At $400/hr, that is 2.5 million hours billed. 90 days in a quarter, that is a theoretical maximum of 2,160 billable hours per quarter. That amounts to 2,134 lawyers working 12 hours/day, seven days per week for 90 days straight.
Biuckaroo - upped you, but $400/hour?
Piker...You think Jamie is hiring cheap lawyers?
So what were the bottom line numbers:
In the world of mark-to-fantasy-FASB-folded, JPM can say whatever they want and release any number they pull out of a hat.
Truth remains: THE BANK IS 100% INSOLVENT.
Carry on reading their statement of lies.
Monsanto is a company among whose most profitable products are GMO corn seed and Roundup weed killer (glyphosate). Both products are tainted goods whose sales are interdependent. Roundup is getting less effective as more and more weeds are Roundup resistant. Monsanto's only ray of sunshine is jumping on board the vaccine bandwagon for the Ebola death virus.
Monsanto is one of the biggest detractors of the European Union and one of the biggest backers of TTIP
Held MON for a number of years, did OK with it until wife realized we own stock in the company that pushed Roundup, amoung other things. Sold it last year for a nice capital gain, but glad to be out of this sob. Fuckers poisening the planet for fun and profit. "Sustainable agriculture" my ass - like the Fed's "sustainable market ramp", this shit will not end well.
What ever happened to the accounting discipline imposed by GAAP?
<"I reject your GAAP reality and substitute my own." - Jamie Dimon>
Like most regulations & laws, GAAP is intended for small & medium sized businesses (non-Fed connected rabble). Never intended for The Illuminati.
you don't need to invoke The Illuminati in order to point out that the accounting rules are heavily stacked in favour of megabusiness (aka Big Biz) in general and megabanks in particular
I remember when the world had two accounting standards, one American, one International. then the one swallowed the other, and the megabanks smiled
A greenie for "(non-Fed connected rabble)"
I so DO like a nicely turned phrase.
I reject the idea of non-recurring charges.
I want to see all the expenses included and have it labeled as CODB(Cost of doing business).
Enough with the gimmicks.
Do like AIG and sue the Federal government....
""an inadvertent early release by a third party website Tuesday meant J.P. Morgan’s financial supplement was in circulation hours before the scheduled 7 a.m ET."
Amazing the number of places that have this kind of information hours or days before official release. The guys in "Trading Places" were pikers- no need to meet some shady informant in a dark parking garage to get the FCOJ report early. Just call up the company and ask to be put on the "early release" list. They'll give it to your early but you have to pinkie-swear not to tell anyone else or trade on what you know.
Other than build beautiful looking branches on every street corner, what the fuck does JPM even do ????
They're beautiful looking? I prefer TD branch bank buildings.
A Bank with over 1 Billion in legal fees... now that's an Honest bank I am sure..
If it is non GAAP it is bullshit.
A credit is a credit, debit is debit.
They must be using Quickbooks Home version and a psrt time 'book keeper' to do their books, meanwhile small business cannot submit financials on a non GAAP basis.
Is that the book keeper that earns $70 an hour working at home part time? I keep reading about her on ZH.
"When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it." - Frédéric Bastiat
It has always amazed me that people who say insider trading is not a crime, will turn purple over the fact that one professional football team will spy on another to garner game plan data.
So, to protect the financial data; print it on a game strategy board!
"It has always amazed me that people who say insider trading is not a crime, will turn purple over the fact that one professional football team will spy on another to garner game plan data."
Simple. Because they've been systematically brainwashed to "think" this way all their lives.
And all those fines make sense for JPM and all the other psychopaths. When you commit fraud you get to keep the plunder if things go right for you. If they don't you pay a fine that represents only part of the plunder and you face no risk of jail time. And far from being a pariah within the "industry" you'll be a hero.
Amen!
I don’t think people outside the “environment” realize that the people inside the “environment” are truly psychopaths.
Conversely, the people inside the “environment” don’t realize that the people inside the “environment” are psychopaths.
They anoint one another as “best-and-brightest”, become TV talking heads, each espousing the genius of one “environmental psychopath” to another; sort of a social engineering masturbatory of Un-American philosophical rudiments, which becomes mimicked and accepted as mainstream.
One must always guard that tolerance is not acceptance. Because we tolerate such behavior, it is assumed we accept the premise of its existence and embrace their philosophy – for lack of a better word.
America has become the Homeland which is a schizophrenic collection of hyphenated tribes sewed together by the aforementioned psychopaths, incapable of unity and the acceptance of others as equals.
Thus, privileged conduct: the anathema of a capitalistic republic. (literary license for affect)
FU they didn't have one losing trade!
If you dont have a court case against jpm yet you are a fool
Lawyers take, whats left behind by the bankers?
Lawyers take 30% usually.
I am starting to think their legal bills are just the way they launder their error accounts and bad trades.
I got a special Fed Ex letter from Chase last Thursday. Seems all of a sudden I'm graced with the ability to refinance my underwater mortgage that they bought a couple of years ago from MetLife. They are offering to shave a whopping 1.36% off my interest rate in exchange for new docs and of course locking me in as there dept slave for the next 30 years. Fuck that. Also it looks like I may be loosing my 3 figure job next month so I may just have them send me a copy of the note and see how screwed up it is.
Arrest Jamie Dimon and bring back the US Gold reserves from his island.
Clearly the banksters have a pretty good gig. They commit the crime and the shareholders pay the price. According to this article it looks like the gig will go on and on.
Just a thought here but wouldn't it make a tiny bit more sense to punish those who break the law rather than the victims?