Friday, April 12, 2013

Bank Q1 "Earnings" Start to Roll In

JPMorgan Chase has kicked off earnings season this morning with its announcement that it "made" $6.5 billion in the first quarter of 2013.  Looking under the hood, $1.2 billion of that consisted of "old" earnings retrieved from the firm's loan-loss reserve. The earning's presentation can be found at the company's website here.  Some quick observations:

  • Total revenue was down $900 million (over 3%) from the year-earlier quarter (page 2).
  • The Consumer and Community Banking division had revenue that was down 6% from both the prior quarter and 1Q2012 (page 4).
  • The Net Interest Margin dropped another 3 basis points  from 4Q2012 (page 13).
  • Net Interest Income for the fiscal year is expected to drop 1% from 2012 (page 14).
  • Over $5 billion of "profits" from the last four quarters have come from the loan-loss reserve (page 19).
In sum, organic business is growing more slowly than JPM's stock price (which is down half a buck in early pre-market trading).  And how about this:  JPM's own analysts have just issued a report saying that Tier I investment banks are "un-investable"--not what the boss wants to hear.

ZeroHedge has a chart showing how our two-tier economy works these days.  Loans from JPMorgan Chase to the real economy are flat-to-declining.  Loans from depositors to JPM are burgeoning.  JPM invests the difference in the canyons of Wall Street, hidden from the light of day.  Money, like manure, works best when it is spread around--and stinks when it is piled up in one place.

[click here to enlarge]

Wells Fargo also released quarterly earnings today (summary here).  Same story as JPM:  nice bottom line, but total revenue was down $300 million year-over-year and twice that from the quarter just prior (page 2); net interest margin was down 8 bps from 4Q2012 (page 3); and in the Community Banking segment (which includes mortgage lending) revenue was down 4% YoY and 6% from the prior quarter.

In this short video [5:06] Christopher Whalen explains to Jeff Macke of Yahoo Finance why banks must shrink their businesses and why some might be getting out of mortgage lending altogether.

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