JPM Beats On Loan Loss Reserve Release Despite Drop In Trading Revenues And NIM, Surge In Non-Performing Loans

There is a lot of verbiage in the official JPM Q3 Earnings press release which directs to a bottom line number of $1.40, or $5.7 billion on expectations of $1.24, with revenue of $25.9 billion on expectations of $24.53 billion. The primary reason for the lack of disappointment: no major losses in Corporate from CIO, with corporate generating $221 million in Q3, up from a loss of $(1.777) billion in Q2. And then come the adjustments:

  • $900 million pretax benefit ($0.14 per share after-tax increase in earnings) from reduced mortgage loan loss reserves in Real Estate Portfolios
  • $825 million pretax incremental charge-offs ($0.13 per share after-tax decrease in earnings) due to regulatory guidance on certain residential loans in Real Estate Portfolios
  • $888 million pretax benefit ($0.14 per share after-tax increase in earnings) due to extinguishment gains on redeemed trust preferred capital debt securities in Corporate
  • $684 million pretax expense ($0.11 per share after-tax decrease in earnings) for additional litigation reserves in Corporate

Then there is a DVA loss of $211 MM in banking. Net-net, after taking into account all one-off adjustments, the Q3EPS was really $1.26. But for all the data fudging, and attempts to make the reported EPS non-comparable to the expected one, following an avalanche of one-time adjustments, the bottom line is this: revenues from trading dropped both sequentially and Q/Q while banking expenses rose, Net Interest Margin dropped to a new record low, even as the firm too a major $967 million loan loss reserve release on its loans to $22.8 billion, even as its total Non-Performing Loans rose by a whopping $1.3 billion to $11.370 billion, the largest quarterly jump in years! Just how JPM can justify such a major contribution to earnings coming from loan losses when NPLs have soared is unclear to anyone with a frontal lobe.

Watch the declining blue number even as the green number (for lack of red ink perhaps?) is now solidly rising,

The JPM bottom line summarized:

Thinking the firm generated any money from actual trading in the quarter? Don't. The Revenue from Trading decling by $489 million from Q2 and by $92 million from a year ago to $6.3 billion, even as expenses increased by over $100 mm both sequentially and Y/Y. The biggest collapse, and this will come as no surprise to anyone, was from a plunge in equity market revenues.

So if trading isn't making money, perhaps at least the core banking service - Net Interest Margin - is? Nope. As the chart below shows, thanks to the Fed's Financial Repression, NIM dropped to a fresh all time low of 2.92%.

Finally, for those curious, net peripheral European exposure  was reported at $12 billion.

Full earnings presentation below.