Saturday, April 21, 2012

JPMorgan Earnings Rebound to Near-Record Levels, Deterioration Halted

Give the Devil his due, CEO Jamie Dimon and accomplices rebounded big-time in Q1 2012. The charts below reflect the upsurge. The financial deterioration has been reversed, at least for the time being. Dimon rolled the dice, they came up 7, and he celebrated, "We strengthened our fortress balance sheet". Just remember, as you have read in many financial disclaimers, past performance is not a predictor or indicator of future performance.

If noninterest (operating) expenses could have been contained, this would have been an even bigger quarter, a monster quarter. We're talking knocking the ball out of the park and bouncing it down the street. Alas, this was not to be and they will have play again next quarter. Noninterest revenues were the primary driver of surging earnings, dampened by skyrocketing expenses. I'll forego further details of the ongoing gains and losses that created this quarterly financial performance, except to say loan losses have decreased significantly and therefore core banking operations are a plus for the company.

The traditional banking business is a component, but not all of JPMorgan, no matter how much management talks about banking. About 30% of total assets are net loans and 36% are trading assets and investment securities. Cash, cash equivalents, securities, and trading assets combined are 60% of total assets. Ultimately that leaves 10% in non-earning assets such as goodwill and buildings. Just keep in mind when trading JPM stock, you are trading their traders for a portion of the quarterly earnings per share lotto.

JPMorgan Income Statement Q1 2012 Financial performance significantly improved QoQ, was flat YoY, and is respectable. Net Revenues were a very strong $26.71 billion, Net Income was a near-record $5.38 billion, and Earnings Per Share was a multi-year, if not all-time, high of $1.31. For QoQ, these were +24%, +44%, and +46%, respectively. For YoY, these were +6%, -3%, and +2%, respectively. Both the Operating Margin of 29% and Net Margin of 20% popped to 3-quarter highs. The operating expense ratio of 62% increased QoQ and YoY to a multi-year, if not all-time, high and is almost out of control.

JPMorgan Balance Sheet Q1 2012 JPMorgan's "fortress balance sheet" is now $2.32 trillion in total assets. Overall financial position is adequate and stable, that is, not much change QoQ and YoY. The capital ratio of 8.18% is lower than desirable, but adequate, as are the Tier 1 Capital and Tier 1 Common ratios. Return on assets is a respectable +0.83%.

JPMorgan Earnings Per Share Current Earnings Per Share of $1.31 is a multi-year, if not all-time, high. The EPS historical (chart) average is $0.78.

JPMorgan Net Revenues, Operating Income, and Net Income All are 3-quarter highs: Net Revenues of $26.71 billion, Operating Income of $7.64 billion, and Net Income of $5.38 billion.

JPMorgan Operating Margin, Net Margin, and Capital to Assets Ratio Current Operating Margin of 28.61% is a 3-quarter high. Current Net Margin of 20.15% is also a 3-quarter high. Current Capital-to-Assets ratio (Capital Ratio) of 8.18% is adequate.

JPMorgan Return on Assets Current Return on Assets of +0.83% is respectable, but a 5-quarter low. The ROA historical (chart) average is +0.65%.

I nominate CEO Jamie Dimon's statement in the earnings press release as some of the greatest propaganda ever written: "JPMorgan Chase positively impacts the lives of millions of people and the communities in which they live. We are serving them each day, putting our resources and our voices to work on their behalf". This would be second place to Goldman Sachs CEO Lloyd Blankfein saying, "I'm doing God's work".

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