Why Bankers Don't Like Reggie: How Many "One Time" Items Do We Need To Make An Item No Longer "One Time"? Featured font size decrease font size increase font size Print E-mail Comments (1) Tweet me! 20131009 162741 271 x Before I get started, I just want everyone to know that I always declared that There's Something Fishy at the House of Morgan (Wednesday, 27 April 2011) . Here are a few historical graphics to bring you up to speed to what should now be painfully obvious, re: JPM! I have warned of this event. JP Morgan (as well as Bank of America) is literally a litigation sinkhole. See JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling Now Wednesday, March 2nd, 2011. Traditional banking revenues: manifest destiny as forwarned - Weakening Revenue Streams in US Banks Will Make Them More Susceptible To Contingent Risks Okay, now back to today's news... JP Morgan reported this morning and we got more of the same, simply that much harder to ignore. On Thursday, 06 January 2011 I posted " As JP Morgan Other Banks Legal Costs Spike, Many Should Ask If It Was Not Obvious Years Ago That This Industry May Become The "New" Tobacco Companies ". Today Bloomberg reported JPMorgan’s Dimon Posts First Loss on $7.2 Billion Legal Cost to mounting litigation and regulatory probes. No surprises here. We saw it coming two years ago and warned accordingly. As excerpted: The third-quarter loss was $380 million, or 17 cents a share, compared with a profit of $5.71 billion, or $1.40, a year earlier, the New York-based company said today in a statement. Shares of the company rose 2.6 percent at 7:50 a.m. after profit adjusted for one-time items beat analysts’ estimates. ... The pretax legal charge was $9.2 billion, compared with $684 million a year earlier. Litigation reserves at the end of September were $23 billion, the bank said, adding that “reasonably possible” losses in excess of those reserves were $5.7 billion. And the (now perennial) kicker... JPMorgan rose to $53.90 in New York trading from $52.52 at the close yesterday. Earnings adjusted for one-time items were $1.42 a share, exceeding the $1.30 average estimate of 20 analysts surveyed by Bloomberg. Pray thee tell me, how many times do "one time" items have to occur before they're no longer considered "one time" items???!!! JP Morgan "found" earnings in the form of reserve releases (again), from the press release: $1.60 billion pretax benefit; $992 million after-tax ($0.26 per share after-tax increase in earnings) from reduced reserves in Consumer Community Banking Now, we've seen this movie before haven't we? The following is an excerpte from a post I made TWO YEARS AGO!: As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves . Time will tell if I am correct, but the trends are still moving in my favor. From Bloomberg: JPMorgan Chase Co. and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said. JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of 2009, compared with a gain of $10 million in the same period a year earlier. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc . and the trustee liquidating Bernard L. Madoff’s firm. ... JPMorgan’s third-quarter net profit of $4.4 billion, up 23 percent from the year earlier, would have been larger if it hadn’t set aside $1.3 billion of pretax income for lawsuits and $1 billion for mortgage repurchases. Banks haven’t yet reported their results for the fourth quarter. Of course, there are a few tidbits missing from this statement that can add to its accuracy. Let's see... Where did those profits come from? Again, you will find divergence between how BoomBustBlog reports and that of mainstream financial reporting. See JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!! Sunday, October 17th, 2010 In a Nutshell, JPM’s quarterly results were downright horrible – as we expected and warned of in our previous quarterly analyses (see notes at bottom of page)… JP Morgan’s Q3 net revenue declined 11% y/y (-5% q/q) to $24.8bn as investment banking revenue declined 18% y/y (-9% q/q) to $12.6bn from $13.9bn in the previous year and net interest income declined 2% y/y (-2% q/q, off of a combination of ZIRP victimization and a rapidly shrinking asset base and loan book) to $12.5bn versus $12.7bn in the previous year. Non-interest expense increased 7% y/y (-2% q/q) to $14.4bn as compensation expenses to net revenues remained broadly flat (28% vs 27.5%) while non-compensation expenses to net revenues jumped to 33% vs 23% in the corresponding period last year. As a result of “Fraudclosure” we expect this number to skyrocket next quarter. Overall, the efficiency ratio (total expenses-to-net revenues) increased to 60% vs 51% and we expect this ratio to spike next quarter as well as the banking business becomes even more expensive. Click to enlarge… However, despite a decline in net revenue and increase in non-interest expenses (both of which appear to be part of an obvious trend), profit before taxes was up 22% y/y as provisions for credit losses were slashed by 60%. JPM decreased its provision for credit losses despite no evidence of a substantial, sustainable improvement in credit metrics (please reference As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves ). Provisions have lagged charge-offs for two consecutive quarters in a row. As a result, banks allowances for loan losses have decreased to 4.9% in Q3 from 5.1% in Q2 and 4.7% in previous year. Although under provisioning has helped the bank to mask its dearth in profits it has also materially undermined its ability to absorb losses if economic conditions worsen. The Eyles test, a measure of banks ability to absorb losses, has consequently worsened to 1.9% in Q3 from 3.7% in Q2 and 5.9% in Q3 09. Wait a minute! If Reggie Middleton complained about reserve pulling and legal expenses 1,2 and 3 years ago and was proven right, how are the occurence of these items in 2013 to be considered "One Time" items???? Exactly! ZeroHedge puts it succinctly: In short: of the firm's $1.42 in pro forma EPS, a whopping $1.59 was purely from the addback of these two items.
The chart below shows that banks have written off $218 billion of credit card debt since 2008. It also shows outstanding revolving debt falling from $1.01 trillion to $819 billion, a $191 billion decrease. For the math challenged, like any Wall Street shill paraded on CNBC, this means consumers have added $27 billion of credit card debt since 2008. Does that sound like deleveraging? Households have also taken on $300 billion of additional student loan debt since 2008, buying into the government sponsored scam to keep the unemployment rate lower by offering the false hope of jobs with useless on-line degrees from the University of Phoenix. Does that sound like deleveraging? Consumer Credit Card Debt and Charge-off Data (in Billions): Outstanding Revolving Consumer Debt Outstanding Credit Card Debt Qrtly Credit Card Charge-Off Rate Qrtly Credit Card Charge-Off in Dollars Q1 2012 $819.4 $803.0 4.37% $8.8 2011 $864.9 $847.6 Q4 2011 $864.9 $847.6 4.53% $9.6 Q3 2011 $826.2 $809.7 5.63% $11.4 Q2 2011 $819.2 $802.8 5.58% $11.2 Q1 2011 $810.7 $794.4 6.96% $13.8 2010 $857.4 $840.2 $77.9 Q4 2010 $857.4 $840.2 7.70% $16.2 Q3 2010 $836.0 $819.2 8.55% $17.5 Q2 2010 $847.5 $830.5 10.97% $22.8 Q1 2010 $860.3 $843.1 10.16% $21.4 2009 $921.9 $903.4 $85.6 Q4 2009 $921.9 $903.4 10.12% $22.8 Q3 2009 $922.2 $903.7 10.1% $22.8 Q2 2009 $933.1 $914.4 9.77% $22.3 Q1 2009 $946.1 $927.2 7.62% $17.7 Q4 2008 $1,010.3 $990.1 (Source: CardHub.com, Federal Reserve) They only people with the courage to tell it like it is are skeptics and outcasts from polite society inhabited by the power elite – people like Ron Paul , Michael Burry , and deceased critical thinkers like Frank Zappa and George Carlin . In one of his final appearances, Carlin brutally lashed out with a torrent of truth, only spoken by courageous people not worried about the consequences of their blunt honesty: “Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear. They’ve got you by the balls. They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting ****ed by a system that threw them overboard 30 ****ing years ago. They don’t want that, you know what they want? They want obedient workers, obedient workers. People who are just smart enough to run the machines and do the paperwork and just dumb enough to passively accept all these increasingly *****tier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. The table is tilted folks, the game is rigged. Nobody seems to notice, nobody seems to care. Good honest hard working people, white collar, blue collar, it doesn’t matter what color shirt you have on. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.” : Source: Economix Blog
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