NYSE: JPM
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Five Scandals That Made JPMorgan Wall Street's Worst Villain
Wall Street's Big Banks are hardly known for their good deeds, but JPMorgan Chase (NYSE: JPM) may be the worst of the lot.
For a bank that used to be considered a model citizen among Wall Street institutions, the reversal of reputation has been stunning.
According to The New York Times, at least eight federal agencies are currently investigating JPM. And JPMorgan has more regulatory sanctions against it than any other major U.S. bank.
The damage to JPMorgan's reputation has gotten so bad that it has started to negatively affect the nation's largest bank by assets.
Increased regulatory scrutiny brought on by the scandals has slowed or halted about 60 new projects in JPMorgan's consumer unit, for example. The turmoil also has touched off a series of high-profile departures from the bank.
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Stock Market Today: Biggest Winners and Losers
The stock market today rallied for a second session on hopes lawmakers in Washington will ink a fiscal cliff deal before year's end.
In afternoon trading Tuesday all three major index were sharply higher. The Dow Jones Industrial Average soared some 90 points by 2:30 p.m., the Standard & Poor's 500 Index climbed 11, and the Nasdaq jumped 33. That followed Monday's gains of 100.38 points, 16.78 points and 39.27 points, respectively.
With few economic releases scheduled for Tuesday, investors' focus was pinned on Washington. House Speaker John Boehner, R-OH, and U.S. President Barack Obama continued to haggle over a fiscal cliff deal, with the president making a counter offer late Monday.
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JPMorgan Chase (NYSE: JPM) Earnings: 34% Profit Gain Thanks to this Business
JPMorgan Chase (NYSE: JPM) reported third-quarter earnings today (Friday) of $1.40 a share, beating increased estimates of $1.21 a share.
JPM, the largest U.S. bank by assets, earned a record $5.7 billion in the quarter, 34% higher than the $4.3 billion or $1.02 reported for the same period a year ago. The strong revenue results also easily topped forecasts.
The impressive numbers were thanks to the bank's robust and growing mortgage and credit business. Mortgage volume was up 29%, and core loan growth grew 10%.
The notable uptick in both segments bodes well for the housing market and U.S. economy, suggesting the real estate market is staging a recovery and consumers are getting more comfortable spending.
"Importantly, we believe the housing market has turned the corner," CEO Jamie Dimon said in a statement.
As a result of improved mortgage and credit conditions, JPM reduced its reserves (cushion) for loan losses by $900 million.
"All in, we think it's a good quarter for JP Morgan Chase, and other banks should see some of the same benefits," Glenn Schoor, an analyst at Nomura Securities told the Financial Times.
Here's a closer look into the third quarter.
JPM Earnings: London Whale Trade Still a Big Deal
Still under scrutiny from the dicey derivative bets made in the bank's London Chief Investment Office, the bank's losses from the failed hedge strategy grew in the third quarter by $449 million.
Since the trade, dubbed the London Whale, was uncovered in the second quarter, losses have cost JPM some $6 billion. Under the worst case scenario, the bank said the losses could widen by $1.7 billion.
CEO Dimon said in a conference call that the bank doesn't anticipate further losses of that enormity and added that the bank has appreciatively reduced the scope of risks in the underlying portfolio.
Anxious to put the matter to rest and behind him, Dimon called renewed focus on the losses a "sideshow" in an otherwise stellar quarter.
"Hopefully we're not going to be talking about it anymore," he said in a statement.
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Stock Market Today: Banks Net Record Profits, But Stocks Slip
The stock market today is trying to end what has been a negative week on a positive note.
Markets have traded down all week on global economic concerns and today are being held back by JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) even though the two financial giants posted record earnings.
Here's what's bringing those stocks down and why consumer sentiment is at a five-year high:
- Banks slide amid record earnings- JPMorgan and Wells Fargo each reported record quarterly profits but neither stock is surging on the results. Wells reported third-quarter net income of $4.94 billion, or 88 cents per share, up from $4.06 billion, or 72 cents a year ago and JPMorgan announced third-quarter earnings of 5.71 billion, or $1.40 a share, up from $4.26 billion, or $1.02 a share a year earlier. The record results were spurred by homeowners taking advantage of lower interest rates in order to refinance their mortgages. "The one big positive is clearly mortgage origination revenues," Richard Staite, an analyst at Atlantic Equities LLP in London, told Bloomberg News in an interview before results were announced. "Rates will remain at this level or potentially drop further and ultimately that will drive a recovery in the housing market."
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JPMorgan (NYSE: JPM) Earnings Preview: Five Things to Watch
The JPMorgan Chase (NYSE: JPM) earnings report due tomorrow (Friday) gives CEO Jamie Dimon a chance to put the huge trading losses from the "London Whale" behind him.
The "London Whale" trades are the are hedged strategy that went bad and cost the bank nearly $6 billion. JPM took the majority of the hit in the second quarter.
JPM stock tumbled in the weeks that followed after details were uncovered and trading losses swelled. Since then, shares have staged a notable recovery rising from $34.59 on July 11 to the recent price of $42.25.
Now JPM earnings have a chance to shake off the scandal and impress investors.
Expectations have grown for Friday's numbers, with the consensus estimate raised from $1.16 per share to projections of $1.21 per share. Estimates have increased in the last three months from $1.04.
Analysts are predicting earnings of $4.74 per share for the fiscal year, with revenue for the year to come in at $97.76 billion.
The fresh forecasts are 18.6% better from the same quarter a year ago when JPM posted earnings of $1.02 per share.
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JP Morgan (NYSE: JPM) Earnings Pinched by Trading Blunder
Despite a $4.4 billion loss stemming from bad credit bets, JPMorgan Chase (NYSE: JPM) still posted a profit of $4.96 billion for the second quarter.
Total losses from the botched trades have reached $5.8 billion, according to Dough Braunstein, JP Morgan's CFO. And it's not over - CEO Jamie Dimon said in the earnings conference call Friday (today) that the fiasco could result in $700 million to $1.7 billion in further losses.
"We learned lessons that will make a stronger company," a contrite Dimon said.
And what expensive lessons they were. The company revealed that the loss on credit derivatives executed by traders in its London's chief investment office (CIO) swelled to $4.4 billion in the second quarter, up from the $2 billion loss it first reported in May when the trading gaffe was exposed.
Dimon nevertheless assured the analysts that JP Morgan has the crisis under control.
"We think we've boxed this," Dimon said.
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JPMorgan (NYSE: JPM) Earnings: What to Watch
It's fitting the JPMorgan (NYSE: JPM) earnings report will be delivered on Friday the 13th, since this has been a scary quarter for the bank and its stock.
Ever since JPMorgan, the largest U.S. bank by assets, revealed a trade gone bad in London that caused billions of dollars in losses, shares have waned and industry forecasters have grown more bearish on shares.
The consensus estimate heading into Friday's release has dropped over the last three months to 79 cents a share from 91 cents.
Those mean estimates would be a 36.2% drop in earnings from the same period a year ago, when JPMorgan turned in an impressive $1.27 a share amid a struggling U.S. economy. Revenue is predicted to stumble 20% year-over-year to $21.93 billion for the second quarter, coming in at $96.58 billion for the year.
Investors and regulators will be most interested Friday in the bank's update on the full extent of the trading losses incurred in what has now been dubbed the "London whale trade." The losses are predicted to be sustainably larger than previously reported, now somewhere in the range of $4 billion to $6 billion.
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What the Moody's U.S. Bank Downgrades Mean for Investors
Moody's ratings agency issued five U.S. bank downgrades Thursday and a total of 15 cuts for global institutions, but markets shook off the news.
The ratings agency cited concerns about the stability of the global systems. Moody's said the banks are not as sound now as they were before the recent global financial woes and contagion.
"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," Greg Bauer, Moody's Global Managing Director, said in a statement Thursday.
Included in the ratings cuts were Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM).
Bank of America and Citi are now rated just two notches above junk status, while Morgan Stanley sits a hair higher at three notches above junk.
Moody's announcement came after the close Thursday, a rocky day for markets with the Dow Jones ending down 250 points and the Nasdaq lower by 71.
The cuts appeared to be a non-event in trading Friday. Shortly after the open, all three major indexes were modestly higher, with affected banks all in the green.
But Moody's U.S. bank downgrades could be a precursor to aggressive trading activity.
"It is a trading indicator that speaks to more volatility in the future for the banks as traders will be jumping all over earnings, derivatives moves, counterparty fears, correlation concerns, "negative watch" implications and regulatory impacts," said Money Morning Capital Waves Strategist Shah Gilani. "I expect the volume in financials to go higher as traders play them more and more."
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JPMorgan (NYSE: JPM) Stock Price Falling as Losses Could Hit $7 Billion
Since the company announced May 10 that it lost billions on a bad trade, the JPMorgan (NYSE: JPM) stock price has dropped about 20%.
And it may have more to go.
CNN Money reported on Monday afternoon that the trading losses are closer to a range of $6 billion to $7 billion, citing several sources who work on trading desks that specialize in the derivatives JPMorgan Chase used to make its trades.
Investors at the Deutsche Bank Global Financial Services Investor Conference in New York drilled CEO Jamie Dimon with questions Monday about how the chief investment office (CIO) racked up the sizable losses.
The biggest U.S. bank by assets, JPMorgan is under pressure from investors and regulators alike to enlighten them on how the CIO, which is in charge of managing excess cash while minimizing risk, made dicey and costly bets on illiquid credit derivatives, some so big they misrepresented market prices.
The $350 billion portfolio managed by the CIO, Dimon reiterated, has a very short duration and an average credit rating of AA designed to "very conservatively handle" interest-rate risks. The heart of the losses, Dimon explained, was the synthetic credit derivative, and just "a part" of the broader portfolio.
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