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- How JPMorgan Aided and Abetted the Largest Municipal Bankruptcy in U.S. History
NYSE: JPM Stock
The nation's largest bank earned $1.31 a share in the first quarter of the year, compared with $1.28 a share in the same period a year earlier. Revenue rose 6% to $26.7 billion from $25.2 billion.
First-quarter net income slipped slightly from a year ago, dipping to $5.4 billion from $5.6 billion. The difference was attributed to stock buybacks, which reduced the number of outstanding shares by 4% compared to a year ago.
Analysts were looking for $1.16 a share for the quarter on revenue of $24.7 billion. The company was buoyed by improved capital market activity, in addition to a solid recovery in consumer credit and business lending.
In recent weeks, several firms raised their ratings on JPMorgan, and the stock has enjoyed a strong rally to date in 2012, rising from $33 in December to its current $44 share price.
One of the biggest advantages for JPM was a low interest-rate environment that encouraged homeowners to refinance, boosting JPMorgan's mortgage-related revenue.
"This is going to be a strong quarter for anyone who has a big mortgage lending or trading business," Paul Miller, an analyst at FBR Capital Markets, told Bloomberg News before results were released. "It might be the best quarter in a long time."
Among the most eagerly awaited results will be the financial earnings, many of which are still struggling to fully recover from the 2008-2009 financial collapse.
The projections released so far look pretty rosy.
First up is J.P. Morgan Chase & Co. (NYSE: JPM). The heavily watched investment bank reports this Friday the 13th.
According to Zacks Investment Research, J.P. Morgan will earn $1.14 a share versus just 90 cents in the final quarter of 2011.
Other financial earnings winners projected by Zacks include:
- Citigroup Inc. (NYSE: C) expected to report earnings of 98 cents next Monday, up from 38 cents the prior quarter;
- Goldman Sachs Group Inc. (NYSE: GS) projected to report $3.22 next Tuesday, up from $1.84 last time;
- Morgan Stanley (NYSE: MS) expected to report 47 cents on Thursday, April 19, up from a loss of 14 cents in the last quarter.
- Wells Fargo & Company (NYSE: WFC) which also reports on Friday the 13th (is that a bad omen?), is expected to show flat results - 72 cents a share versus 73 cents last quarter;
- Bank of America Corp. (NYSE: BAC) is projected to see a drop from 15 cents to 12 cents when it reports April 19.
Even those with good numbers this time could face storm clouds ahead.
The Financial Earnings Season Game PlanFor starters, J.P. Morgan, Citigroup, Wells Fargo and BofA, along with Ally Financial Inc., all face future hits thanks to the $25 billion settlement reached in February regarding foreclosures and malfeasance in handling mortgages left worthless by the housing crisis.
J.P. Morgan must also pay new federal penalties as a result of a settlement last week in the civil suit over actions it took that helped lead to the collapse of Lehman Brothers in 2008.
On the other hand, Wells Fargo, JPM, BAC and many others could get a significant boost from the new and improved version of the Home Affordable Refinance Program (HARP 2.0) adopted last month.
So, given all this, how can you hope to profit from any move in the financial stocks in the wake of their upcoming earnings releases?
Obviously, simply buying the stocks ahead of the reports is not the answer.
A New York Post article reported the two listing companies were in "hot debate" for Facebook.
"Facebook won't significantly change the listing revenues for these companies but there could be a real halo effect wherein other companies decided to list with whichever wins Facebook," Larry Tabb, founder of capital markets advisory firm Tabb Group, told The Post.
Besides the ticker, the biggest questions on investors' minds include:
How much does Facebook want to raise? The latest rumors say the filing will set a preliminary goal of $5 billion, which can be raised if enough investor interest is shown.
Start the conversation
While bank earnings are usually a good barometer for the nation's economy, many of the factors weighing down financials, such as tougher regulations and the Eurozone debt crisis, aren't necessarily a reflection on U.S. economic activity.
In fact, according to the U.S. Federal Reserve's Beige Book report, released Wednesday, the overall economy at the end of last year continued to improve slowly but steadily.
Friday the 13th for the FinancialsAnalysts have been consistently lowering earnings expectations for all the big banks in recent weeks.
"Friday the 13th will live up to its name when it comes to bank earnings," Mike Mayo, an analyst with independent research firm CLSA in New York, told Bloomberg News. "You're going to see all sorts of revenue and margin pressure and the results will be underwhelming."
The consensus estimate for JPMorgan, the nation's biggest bank by assets and a bellwether for the industry, has slid from $0.97 per share to $0.94 per share in the past month; three months ago the estimate was $1.11 per share.
That puts JPMorgan's earnings below the $1.02 per share of the previous quarter and well below the $1.13 of the year-ago quarter. JPMorgan's revenue is expected to drop 20.8% from first-quarter 2011.
And as disappointing as that sounds, JP Morgan will be one of the strongest performers this bleak bank earnings season, which follows a year in which some bank stocks fell more than 40%.
As the other major U.S. banks report earnings next week - Citigroup Inc. (NYSE: C) and Wells Fargo & Company (NYSE: WFC) on Tuesday, Goldman Sachs Group Inc. (NYSE: GS) on Wednesday and Bank of America Corp. (NYSE: BAC) and Morgan Stanley (NYSE: MS) on Thursday -- the din of negativity will be hard to ignore.
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But believe it or not, that's not the biggest story here.
The big story is how JPMorgan Chase & Co. (NYSE: JPM) - specifically, JPMorgan's Securities arm - has a filthy hand in the whole Jefferson County saga.
This isn't breaking news. I've written about it before and so have others. You just may have missed it because the spin machine was so effective that the story got buried fairly quickly.
It's really an interesting story - albeit a long one. But unfortunately, I don't have the space and you don't have the time for all the grisly details, so here's the short version.
Jefferson County is full of characters - and a few who made it into the local government turned out to be good old boy crooks.
Jefferson County, home to Birmingham, had an aging and stinky sewer system. The Environmental Protection Agency (EPA) demanded that the county do something about it as far back as 1996.
And it did.
County administrators decided that a brand new sewer system needed to be built at an expected cost of about $1.5 billion. With that decided, the county commission had to decide who would run the financing operations, craft a plan to manage the debt, and float bonds to pay for the project.
Here's where I'm cutting out all the starch and getting to the meat of the story: Local politicians, who were in cahoots with local broker-dealers (securities firms), wanted a piece of all the money that was going to be sloshing around. They ended up demanding, and getting, hefty bribes from big securities firms to let them become the chosen ones to run this lucrative muni finance deal.
I'm not going to get into how Goldman Sachs Group Inc. (NYSE: GS) got involved in 2002 and ended up being paid some $3 million (some of which it passed along to "consultants") to get in on the deal - which incidentally it ended up doing nothing on, other than participating in a back-door swap arrangement with JPMorgan Securities. Nor am I going to get into Bear Stearns' dealings, nor the small securities dealers who acted as conduits for money being exchanged between JPMorgan and others.
Instead, I'm going to focus on JPMorgan, which ended up constructing the finance arrangements and doing most of bond deals that served to finance the building of the new sewer system - because that's where the story takes a truly ugly turn.