Earlier today JPMorgan announced results that were better than expected, with revenue of $27.4 billion on expectations of $24.1 billion, and EPS of $1.31 or $5.0 billion, on expectations of $1.17. As previously noted, the bank increased its dividend to $0.30/share, and has authorized a $15 billion new repurchase, which however will likely not be a sizable factor, as JPM has already said with the stock price at the current level buybacks are not accretive. As for the EPS beat, as usual the one-time items swamped everything else, of which the primary one, reduction in loan loss reserves which is the traditional way for the bank to pump up the bottom line, accounting for $1.8 billion or $0.28/share. We are curious how Jamie Dimon will justify this accelerating release even as the firm's Nonperforming loans increased for the first time in years from $10 billion to $10.6 billion: just the TBTF put or something else? Other amusing "one-time" items were the $1.1 billion ($0.17/share) from the WaMu bankruptcy settlement as well as a $0.9 billion loss ($0.14/share) loss from DVA this time hurting the bank as JPM's CDS tightened in Q1. Also curious was a substantial $2.5 billion expense for additional litigation reserves, which is certainly not a one-time item now that every bank is suing JPM and is merely a catch up for Dimon to where he should have been reserved. That, or something else - just what is JPM seeing that others are not (hint: ask Bank of America). This number will continue rising. So net of the real one-time items, EPS was less than a $1.00.
Taking a look at the investment bank shows that in the traditionally strongest quarter, virtually all revenue items declined year over year. The key line here: "IB fees of $1.4B, down 23% YoY on lower industry volumes"
- Fixed income and Equity markets revenue of $6.0B ($6.4B excl. DVA). Excluding DVA:
- Fixed income revenue of $5.0B, down 2% YoY
- Equity revenue of $1.4B, down 4% YoY
The one JPM's banker will not be happy with:
- Expense of $4.7B, down 6% YoY, driven by lower compensation expense
Also in Q1, VaR increased to 81 from 75 in Q4 2011. It is unclear how much of this VaR can be attributed to Bruno Iksil. Since he is a whale we can only assume all his numbers are under the surface.
Those curious how much JPM is taking advantage of the NIM arbitrage differential will behappy to know that:
- Mortgage originations of $38.4B, up 6% YoY and relatively flat QoQ
- Retail channel originations (branch and direct to consumer) up 11% YoY and relatively flat QoQ
But the key chart is the following, which shows that no matter what happens, Jamie Dimon is happy to boost earnings by reducing his loan loss reserve, which over the past 2 years alone has generated $12.3 billion in non-earnings earnings! Naturally, loan loss reserves were down $3.9 billion from a year ago: easy money.
But far more troubling on the chart below is the first increase in nonperforming loans (green segment) to $10.6 billion for the first time in years...
Expect many questions on this table in the conference call.
Finally, JPM's presentation of its Net Interest Margin: down to 2.61% and sliding. You better hope we get some steepness in that curve soon.