JPM Release Earnings: Announces $4.4 Billion CIO Loss, $3.1 Billion In "Profits" From Loan Loss Reserves, DVA

Tyler Durden's picture

In light of the just announced huge 8-K which has JPM admitting it was mismarking hundreds of billions in CDS, in effect destroying the CDS market for everyone (as we predicted 2 months ago would happen), the firm's earnings (and CIO losses) are very much irrelevant. But here they are regardless: $5 billion in Net Income, which includes a $4.4 billion in CIO losses offset by $1.0 billion from "securities gain in CIO investment securities" i.e., asset sales; also in Q2, the firm took a $2.1 billion "benefit" from reducing loan loss reserves (the usual accounting gimmick), and $0.8 billion DVA "profit" as a result of its CDS blowing up. Finally JPM also announced $0.5 billion gain on a "Bear Stearns related first loss note." In summary, expectations were for $0.76 in EPS; reported EPS Ex-DVA were $1.09, and ex-all one time gains, $0.67. In other words, JPM's bottom line is totally meaningless, as the bulk of profits are from totally garbage and meaningless numbers. The real question is how much net income is now forever gone as a result of i) the unwind of the CIO's synthetic division, aka the most profitable group at JPM, and ii) the fact that the entire firm's CDS marks were made up and will now have to reflect reality. Now, back to the main news of the day: the fact that JPM just threw the entire CDS market under the bus, and England's Lieborgate just arrived in the US courtesy of CDS-gate.

From the earnings results:

First-half 2012 net income of $9.9 billion, EPS of $2.41 and revenue of $49.6 billion not impacted by first-quarter 2012 restatement; second-quarter 2012 balance sheet and capital ratios also not impacted4

Second-quarter results included the following significant items:

  • $4.4 billion pretax loss ($0.69 per share after-tax reduction in earnings) from CIO trading losses and $1.0 billion pretax benefit ($0.16 per share after-tax increase in earnings) from securities gains in CIO's investment securities portfolio in Corporate
  • $2.1 billion pretax benefit ($0.33 per share after-tax increase in earnings) from reduced loan loss reserves, mostly mortgage and credit card
  • $0.8 billion pretax gain ($0.12 per share after-tax increase in earnings) from debit valuation adjustments ("DVA") in the Investment Bank
  • $0.5 billion pretax gain ($0.09 per share after-tax increase in earnings) reflecting expected full recovery on a Bear Stearns-related first-loss note in Corporate5
  • Substantial progress achieved in CIO
  • Significantly reduced total synthetic credit risk in CIO
  • Substantially all remaining synthetic credit positions transferred to the Investment Bank
  • Investment Bank has the expertise, capacity, trading platforms and market franchise to manage these positions
  • CIO synthetic credit group closed down
  • Conducting extensive review of CIO trading losses; CIO management completely overhauled; governance standards enhanced; believe events isolated to CIO
  • Fortress balance sheet remains strong
  • Basel I Tier 1 common1 of $130 billion, or 10.3%
  • Estimated Basel III Tier 1 common1 of 7.9%, after the impact of final Basel 2.5 rules and the Federal Reserve's recent Notice of Proposed Rulemaking
  • Strong loan loss reserves of $24 billion; Global Liquidity Reserve of $414 billion
  • JPMorgan Chase supported consumers, businesses and our communities
  • Provided $130 billion of credit3 to consumers in the first six months of 2012
  • Issued new credit cards to 3.3 million people
  • Originated over 425,000 mortgages
  • Provided nearly $10 billion of credit to U.S. small businesses in the first six months, up 35% compared with prior year
  • Provided $260 billion of credit3 to corporations in the first six months
  • Raised over $460 billion of capital for clients in the first six months
  • Nearly $29 billion of capital raised for and credit3 provided to more than 900 nonprofit and government entities in the first six months, including states, municipalities, hospitals and universities
  • Hired more than 4,000 U.S. veterans since the beginning of 2011

As the update on CIO and its residual positions:

For now, CIO will retain a portfolio of approximately $11 billion
notional amount of mark-to-market positions as an economic hedge for
certain credit exposures of the investment securities portfolio and tail
risk for the portfolio. This long protection (i.e., short credit) is
simple, transparent and easy to explain and will likely be reduced over

Full filing here.

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firstdivision's picture

Apparently, JPM losing less than thought causes WTI to go verticle.

GetZeeGold's picture



It's in the manual......somewhere.


BandGap's picture

No shit, more bizarro kool-aid.

GetZeeGold's picture



Hey wow.....this doesn't taste half bad.


Sudden Debt's picture


was my Urine sample....

for my doctors appointment this afternoon...


GetZeeGold's picture



....then you must be holding my lemonade.


ndotken's picture

When the TBTF "banks" are holding shit like this on their balance sheet and making up shit like this on their income statement, why in hell would anyone ... ANYONE ... own their stock?  WTF IS WRONG WITH PEOPLE NOWADAYS???

JackT's picture

I'll wait for the FOIA documents to be released...remember, JP called to inform the FED? This isn't over.

Meesohaawnee's picture

Baked in bitchez!..and here you thought the internet stock  boom was a fraud...

Drag Racer's picture

speaking of fraud, would JPM actually post any profit without food stamp 'handouts'

Iriestx's picture

No investment bank in the country would still be in business without food stamp handouts.

MillionDollarBoner_'s picture

"For now, CIO will retain a portfolio of approximately $11 billion
notional amount of mark-to-market positions as an economic hedge for
certain credit exposures of the investment securities portfolio and tail
risk for the portfolio. This long protection (i.e., short credit) is
simple, transparent and easy to explain and will likely be reduced over

Dimon - you must think we are "simple, transparent and easy" if you expect us to believe a word of this!


Martin Silenus's picture

"He's nothing but a low-down, double-dealing, backstabbing, larcenous perverted worm! Hanging's too good for him. Burning's too good for him! He should be torn into little bitsy pieces and buried alive!"

fuu's picture

"Take it easy Charlie. I've got an angle."

MillionDollarBoner_'s picture

Becky: "So, these results are better than expected"

Joe: "Yeah, and I think Dimon comes out of this well"

Jim "Definitely. I'll be backing up the truck and loading up on the back of these outstanding figures"  

ZH11's picture

March 2012: All an over reaction


July 2012: Not as bad as $9Bn, it's only a $4-5Bn problem


Anyone like a guess as to what he's going to say at the end of September?


death_to_fed_tyranny's picture


Sudden Debt's picture

No he's not!

He sees a oppurttunity and he takes it.

E V E R Y B O D Y   W O U L D   D O   I T !!!!

EVERYBODY!! If the law says you can, you do it.


bourbondave's picture

Who writes this crap at these companies?  Someone thinks that anyone cares that JPM "Hired more than 4,000 U.S. veterans since the beginning of 2011" and "JPMorgan Chase supported consumers, businesses and our communities"?!

spooz's picture

God's work is above the law.

Sudden Debt's picture


You do something good for somebody, they pass it down and before you know it... NIRVANA!!

SDRII's picture

Rinse wash repeat. expect dimon to announce another round of stress tests; when all else fails. You know the fortress balance sh&t and all. Anywone heard from wells former CFO? 

Albnyc's picture

You f--ked up; You trusted us.

Sequitur's picture

Hey Jamie, aren't you glad I totally fucked my MF Global clients so you and I could jointly rape their segregated accounts without lube? Use that cookie jar for 3Q2012, you're gonna need it. Also, say hello to Andy Fastow for me.

- John Corzine

ParkAveFlasher's picture

normally i'd have some snark but i just realized that as a taxpayer, jp's loss is my loss.  so, i'm buying silver bullion today.

Ted Baker's picture


onebir's picture

"In light of the just announced huge 8-K which has JPM admitting it was mismarking hundreds of billions in CDS, in effect destroying the CDS market for everyone"
Idiot-boy questions (my speciality) why does JPM's mismarking destroy the whole CDS market?
(ie: Weren't they trading the CDS at market rates but mismarking them internally to boost trading desks' P&Ls?)

Since the directors sign off that these (materially mistated) accounts are true and fair, doesn't this put them in the firing line for a class action by shareholders? (Along with the auditors)

dark pools of soros's picture

A class action from the bots?

terryfuckwit's picture

with due considersation given to Nobel Prize nominated acedemic thesis "Fuckwits theory of lie-ocratic bastardry" the earnings figures may not be as at first they might appear..??


They may indeed just be numbers printed on your screen..  by lying bastards...

anyways's picture

what a completely rubbish fake. The Mafia is wondering how their folks on wall street do this.

GetZeeGold's picture



Well first...the Mafia can be arrested. These guys....not so much.


I suppose it's possible.....but I've never seen it happen.


Hype Alert's picture

Just be glad your tax dollars are keeping these fine organizations in business.  Anyone up for another bailout?  It may be needed.


Didn't we have a candidate that wanted to abolish the FED?

Downtoolong's picture

JPM just threw the entire CDS market under the bus

Exactly. It’s another sad example of the worst aspect of these financial market debacles. The biggest crime is against efficient, fair markets. For every dollar these people hope to gain by manipulating markets and breaking rules (whether or not they ever achieve it) this ends up costing many innocent bystanders thousands of dollars. And when you multiply that thousand dollars by many multi-million dollar bonuses, that’s a lot of loss. Thanks primarily to JPM’s size and market power, their $4.4 billion loss is a minor fraction of what it already did and will continue to cost everyone else relying on these markets. And Becky Quick thinks that's a good thing.

Never One Roach's picture
Bizarre Case of Failed [PFG] Broker Gets Even Stranger


CEDAR FALLS, Iowa - Just days before Peregrine Financial Group collapsed, the firm's president sent an email to employees suggesting the crisis had passed, CNBC has learned.

"It is believed that based on current cost cuts and projections for increases in income in particular from international business ... that PFGBEST will be able to run at break even," wrote President and Chief Operating Officer Russell Wasendorf, Jr., in the July 6 email obtained by CNBC and verified by multiple PFG employees.

(Click here to read the entire email.)

The email says a ten percent across-the-board salary cut planned for this month would not be necessary.

"We have done our utmost to weather the economic difficulties presented in 2012 and the industry factors that caused all (futures brokerages) to require some restructuring," the email said.




Is that what they call it now??

newworldorder's picture

You do realize that in the grand scheme of things banking fraud and accounting tricks  do not matter to the population at large.

One of the big stories today on NBC's GMA was the ripoff in Carnival Fair Games. Dimes, quarters and dollars were "stolen" in games of chance. Shame on the carnival hawkers and operators  taking allowance money from children. This abuse calls for Congressional investigation.

Dburn's picture

Yeah I saw that. I went once as a kid and thought, JHC, what a rip-off. Those guys are rank amateurs compared to Dimon

Dburn's picture

The reduction in loan loss reserves to increase profits takes it to a new high, or low depending on how you look at it. If I read this right, after  using this accounting gimmick  repeatedly to boost profits, this time by 2.1 Billion, it it leaves 238M in reserves against 650B in at risk assets or 0.03% .

They may as well have taken it all because even the slightest loss on their assets will push that in the red. A 1% reserve would have been 6.5B. Normally 3% is carried in good times or 19.5B in this case. But hey , 20B is worth 2B a quarter in BS profits or more than a full years net profit since 2009. What I would love to see is last years actual losses vs the loan loss reserve they have now. 

Way too many people wearing the Dimon Cheerleading uniform. It's also notable that the other banks seeing what JPM did to artificially boost earnings ( reduce loan loss reserves+mark to market on debt and any number of small untraceable activities to enable a profit where there was none) will do exactly the same.

The big question is now they the have exhausted their reserves on profit boosting, where are they going to find billions next quarter. Oh wait, is that a Chase Credit card in your wallet. The 60 day notices for rate increases  are coming in 3,2,1... Someone has to pay and it might as well be the customers. They haven't been asked to contribute ALL of their income yet...but it's coming. After all, Dimon is a national treasure and must be protected at all costs. That's why, when bonuses come out, he will be taking out record money  for being named CEO of the year. He will get well  rewarded for being forthcoming about lying.
"Yes we lied, yes we will continue to lie and yes there is nothing you can do about it. "

coltek's picture

I guess that's what you call nearly almost fractional reserve banking!!

coltek's picture

Ok guys, I got an idea. This is what we are gonna do...............................................................................................................