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JPMorgan Misses Across The Board On Disappointing Earnings, Outlook; Stealthy Deleveraging Continues
Maybe we now know why JPM decided to release results after market close instead of, as it always does, before the open: simply said, the results were lousy top to bottom, the company resorted to its old income-generating "gimmicks", it charged off far less in risk loans than many expected it would, and its outlook while hardly as bad as it was a quarter ago, was once again dour.
First, the summary results, in which JPM saw $23.5 billion in non-GAAP net revenues, because yes, JPM has a pre-GAAP "reported revenue" item which was even lower at $22.8 billion...
... missing consensus by $500 million, down $1 billion or 6.4% from a year ago.
While the Net Income at first sight seemed to be a beat, printing at $1.68, this was entirely due to addbacks and tax benefits, which amounts to a 31 cent boost to the bottom line, while for the first time, JPM decided to admit that reserve releases are nothing but a gimmick, and broke out the contribution to EPS, which added another $0.05 to the bottom line.
There were two surprises here: first, JPM's legal headaches continue, and the firm spent another $1.3 billion on legal fees during the quarter - one assumes to put the finishing touches on the currency rigging settlement. Also, as noted above, instead of taking a credit charge, i.e., increasing reserve releases, JPM resorted to this age-old gimmick, and boosted its book "profit" by $450 million thanks to loan loss reserve releases, the most yet in 2015; ironically this comes as a time when JPM competitors such as Jefferies are taking huge charge offs on existing debt. It appears JPM is merely doing what Jefferies did for quarters, and is hoping the market rebounds enough for it to not have to mark its trading book to market.
While the release of reserves helped JPM in this quarter, unless the economy picks up substantially next quarter, JPM's EPS will be hammered not only from the top line, but also from the long-overdue rebuilding of its reserves which will have to come sooner or later.
Completing the big picture, was something rather troubling we first noticed last quarter: JPM's aggressive push to deleverage its balance sheet, by unwinding billions in deposits. Indeed, as the bank admits, it has now shrunk its balance sheet by a whopping $156 billion in 2015, driven by a massive reduction in "non-operating deposits" of over $150 billion. Perhaps the US does not need NIRP: it appears banks like JPM are simply saying not to deposits.
Then stepping away from the bank, and looking just at JPM's most important division, its Investment Bank, there were no major surprises there: Fixed Income Revenue crashed by $854 million Y/Y to $2.933 billion, which however was in line with sellside expectations. The silver lining: equity markets revenue of $1.4 billion posted a modest improvement of $173 million from Q3 2014.
This is how JPM explained it:
- Fixed Income Markets of $2.9B, down 11% YoY, excluding business simplification
- Equity Markets of $1.4B, up 9% YoY, driven by strong performance across derivatives and cash
The punchline:
- Firm loans-to-deposits ratio of 64%, up 8% since year-end
This was up to 61% last quarter, and is indicatively of the end of QE as the fed no longer pumps the company full of deposits without a matching loan increase.
Perhaps the most interesting thing about this slide was JPM's admission at the very end that it had suffered $232 million in credit costs "reflecting higher reserves driven by Oil & Gas." Considering this was a decline from the $299MM cost from a year ago, one wonders just how (in)sufficient this will be if and when the oil rebound once again fizzles.
Curiously, despite the most recent tumble in yields, JPM was happy to reported that after NIM rose by 2 bps last quarter, in Q3, "Firm NIM is up 7bps QoQ largely driven by positive mix impact of lower cash balances and higher loan balances."
Finally, the outlook: while hardly as dour as last quarter when as a reminder JPM said "for 3Q15, expect business simplification to generate YoY negative variance in Markets revenue of 9%, with an associated reduction in expense", this time the revenue guidance cut is only 2%. We expect this number to prove insufficient if the current market volatility continues.
JPM also said to "Expect 4Q15 YoY core loan growth to continue at 15%+/-." So a 30% swing from top to bottom.
Here is the full outlook for what was a quarter JPM would be happy to forget
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Even the free money kings can't turn a profit anymore? Spooky! Just in time for Halloween.
more like captain of the titanic bailing.
Pardon me for barging in here... FUCK YOU JAMIE
Yes ! Fuck you, jamie.
FUCK YOU, DIMON!!!! BASTARD!!!!!!!!!!
I think we could excuse you for that.
For a real scarey Halloween experience, JPM can give tours of its cobwebbed and near empty sub-basement gold depository. Nothing glitters brighter in dim light than gold plated tungsten bars.
If the free money kings can't turn a profit, I'd say there is something wrong with their pay scales.
My younger sister graduated this past summer..first job at JPM. Apparently non-exempt employees were paid bimonthly (15th and 30th of each month)..just switched to every other Friday pay on a 1 week lag! Now good ol JP gets to keep 1 week of labor cost for all their analysts! I knew they were in bad shape the second she told me..
I am surprised JPMorgan still had a semi-monthly payroll. Most companies I know of have a bi-weekly payroll. As for the one week payroll lag, that lag could be for other reasons than holding a week in escrow. This one week gives the payroll department time to make adjustments before a paycheck is printed. It could just be that JPMorgan changed the way it processes its employee payroll payments, from using inhouse staff to process payroll uniformly across all units to using an outside payroll company whose standard payroll period is bi-weekly.
.
All your points are valid. JPM does not outsource its payroll to a service provider. They may BPO it though. All payroll companies can handle all pay frequencies. I was in this space for a long time, and JPM was a client for referrals, and my relationship I sold and managed.
this too is bullish
Hear JPM MOAR!
Loans - you know, those things we are supposed to need banks for - up 15%.
That, my friends, does not signal recession.
Depends upon who the loans are for, connected politicians, friends and family?
Unless they were loans to corps to issue buyback to prop the market to stop JPM from losing even more in the securities.
JPMorgan's income tax expense line item always cracks me up.
This company is one of the worst at tax evasion. If the public knew how many billions it has drained out of the Social Security Trust Fund they would move their accounts in a heartbeat.
If they'd stop all their illegal activities they might be able to save some money instead of paying huge fines in order to make the government rich.That's what you get for being a crook.
What is that belt-drive pulley system thingy in the photo caption of Dimon - is he revving up or downshifting...?
The Morgue pretty much telegraphed this miss over a month ago.
What really perplexes me, is how the JPM prop trading desk only lost on 4-5 trading days out of 5-600? They have to use fines as crutch, to justify those loses? [ not called prop trading anymore] Now it's extra special liquidity providing hyper~trading/sciences. ha
I guess it's back to gambling with depositors money instead of excess reserves via REPO's.
Time for the Fed to crash everything again, bail out the banks again, and 'goose' the bank profits once more. Wash/rinse/spin/Repeat.
Suck it, Dimon!
According to my NON GAAP accounting I am a billionaire. When you, or I, ignore accounting rules we can assign any value to our assets! Nice, eh? JP Morgan is a well run criminal outfit.