JP Morgan (JPM) reported Q2 earnings that beat the street’s expectations, with EPS coming in at $0.54 (down from $1.20 a year ago) vs. the Street’s $0.44 estimate. JPM recorded $18.39 billion in revenue (down from $18.9 billion a year ago) vs. the consensus estimate of $16.55 billion.
A conference call is scheduled for 8:00 AM Eastern, and we’ll be covering it here. Investors will be looking for strong guidance as well as the assurance that no more surprise write-downs are on their way.
- Increased credit reserves by $1.3 billion firmwide; loan loss allowance coverage of 2.86% for consumer businesses and 2.13% for wholesale businesses
- Recorded markdowns of $1.1 billion in the Investment Bank, related to leveraged lending and mortgage-related positions
- Tier 1 Capital remained strong at $98.7 billion, or 9.1% (estimated)
- Provision for credit loss to $3.45 billion
- Net Income down 53% yoy on “higher provision for credit losses and increased noninterest expense.”
Conference Call Notes
08:00: Music playing…
08:02: Call begins, usual introductory remarks and disclaimers about forward-looking statements…
08:04: CFO Mike Cavanagh goes over accounting figures related to acquisition of Bear Stearns.
08:06: Merger costs will come down from $900 million to $500 million… continued confidence in value of acquisitions. Pleased with progress of “de-risking” of Bear Stearns balance sheet.
08:08: Investment banking results… profits of $394 million on $5.5 billion in revenue. Dragged down by Bear… expected to improve.
08:10: Fixed income $2.3 billion in revenue, strong despite $700 million writedown in leveraged loans.
08:12: $22.5 billion in total leveraged lending commitments. 18.3 billion in leveraged loans, sold 19%. No major change in L3 assets.
08:14: Had $45.8 billion in mortgage-related exposure… off-loaded 28% to end quarter with $33 billion. “Too much, but much is AAA and we hedge, so don’t worry.” (Paraphrased, Not Verbatim).
08:19: $95 billion in home equity portfolio. $511 million in charge-offs. “Too early to declare victory, but rate of deterioration slowing.”
08:21: 4.98% charge-off rate in credit cards… weak revenue growth in credit cards.
08:25: Tier 1 capital very strong at 9.1%. Remained strong despite absorbtion of Bear Stearns.
08:29: Outlook: I-bank: markets look to remain challenging and volatile, “liquidity not as strong as we would like.” Strong loan loss reserves, but credit is “ideosyncratic.” “Despite balance sheet de-risking, substantial risks remain.” “The weaker that housing gets, the more risk there is.” (Paraphrased, Not Verbatim).
08:31: Q&A Begins… UBS analyst asks for colour on strength of trading, JP Morgan vs. Bear… how much of a drag?… Answer: “Profits could have been a couple hundred million higher if not for Bear, but will trend positive in second half of the year.”
08:33: Merrill analyst asks about transaction-related costs in Bear deal, “how much are essentially reserves hung up on the balance sheet that could work way into earnings?”… Answer: very little.
08:39: Merrill analyst asks why comp ratio was so high… Answer: “Will begin to look more normal, but we don’t want our people getting depressed… we want them to stick around.”
08:43: Deutsche Bank analyst asks about prime mortgage… Answer: “California, Florida, and Arizona are killing us… losses could triple.”
08:46: Deutshe analyst asks what impediment there is for acquisition in retail banking… Answer: Market-to-market accounting makes difficult. But this is a good environment, this will lead to more mergers over time.
08:50: Goldman analyst asks about increase in equity in I-bank, why only $4 billion allocated?… Answer: Peer comparisons are misleading. Dimon: You have to consider quality of capital, “we’re verry conservative.”
08:55: Meredith Whitney asks about uninsured deposits, colour on Indy Mac… Answer: Deposit growth is strong. “We worry about us. There are banks out there with problems, we benefit from this.”
09:05: Call ends…
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