Friday, October 12, 2012

JPM Underwhelms with Q3 Earnings

CEO Dimon:  feeling the heat?

This morning's headlines say it's a beat.  But the third-quarter earnings report from JP Morgan Chase leaves a lot more to be desired than just transparency.  The capsule summary from ZeroHedge:

"[T]he 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 took 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!"

In other words, business is not exactly booming at this top-tier investment bank.  We might have guessed that a lackluster report was coming simply by listening to CEO Jamie Dimon's sour-grapes speech two days ago, when he insisted (regarding his firm's takeover of Bear Stearns in 2008) that the devil made him do it.  Make that devils, plural.  You know, Treasury Secretary Hank Paulson, Fed Chairman Ben Bernanke, the usual suspects.  "We did them a favor," Dimon said in D.C. on Wednesday.  "We were asked to do it and we did it at great risk to ourselves."

But that's not what Dimon was saying in March 2008, when he described the takeover as "good long-term value for J.P. Morgan Chase shareholders."  He then went on to say, "This acquisition meets our key criteria:  we are taking reasonable risk, we have built in an appropriate margin for error [i.e. we underpaid, heh-heh], it strengthens our business, and we have a clear ability to execute."

Yeah, clearly.  Dimon now claims that losses from the acquisition have run in the billions--and counting, what with state attorneys general launching litigation left and right.  Diamond Jim is being disingenuous, moreover, with the later assertion that risk came looking for him, and not vice versa.  Billions more have been lost as JPM unwinds the infamous London Whale trade.  And now we learn from this morning's report that the company in one quarter almost doubled its exposure (now close to $12 billion) to the sovereign debt of the stressed peripheral nations of Europe--a dice roll if there ever was one.  Whales, PIIGS, you name it, Dimon is rooting for profits in all the wrong places.

Bank analyst Christopher Whalen suggests here that Jamie needs a little adult supervision.  Either that or a freshly minted stack of resumés for his next job search.  Bank compliance expert Michael Crimmins is of the opinion that Dimon deserves not just a pink slip, but an orange jumpsuit.  The Whale Tale, in his view, reveals "glaring deficiencies in internal controls [at JPM] that warrant prosecution of Jamie Dimon under Sarbanes Oxley."  Remember that, in case Obama/Biden need to shag a few more votes going into the November election.

As for JPM's failed business model, Reggie Middleton and Max Keiser share some thoughts here:

[update, 10-15-12--]

Next up, Citigroup, whose Q3 report this morning used many of the same accounting gimmicks as JPM to make lemonade out of lemons.  ZeroHedge scrubs C's financials here.

[update, next day--]

Citi's Chief Executive Officer and Chief Operating Officer are given the heave-ho.  Some quarter.  Some company.

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