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)
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JP Morgan (NYSE: JPM) Earnings Pinched by Trading Blunder
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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.
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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JPMorgan (NYSE: JPM) Earnings and Five Others That Could Surprise You
Earnings season begins in earnest this week as financial giants JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) report for the April-to-June period.
A flood of reports from other corporations follows next week before gradually slowing to a trickle by the month's end.
How investors perceive those numbers could well kick off an up- or downtrend in share prices that will continue for weeks, or even months.
That is especially true if there is an "earnings surprise."
An "earnings surprise" occurs when the revenues and profits a company reports differ significantly from analyst expectations.
Positive surprises - earnings that beat the pre-report forecasts - tend to drive stock prices higher, while negative surprises send them lower.
The bigger the surprise, the more rapid and dramatic the move becomes.
Usually considered one of the strongest companies in the financial sector, JPM would normally be expected to surpass the pre-report estimates. After all, the company has beat earnings in three of the past four quarters - including an 11% surprise in the January-March period, when earnings came in at $1.31 a share vs. a projected $1.18.
However, the company has been rocked by controversy following revelations that it suffered more than $4 billion in trading losses on what JPM called a "hedging strategy" but others described as an outright "bet" on interest rates.
A flood of reports from other corporations follows next week before gradually slowing to a trickle by the month's end.
How investors perceive those numbers could well kick off an up- or downtrend in share prices that will continue for weeks, or even months.
That is especially true if there is an "earnings surprise."
An "earnings surprise" occurs when the revenues and profits a company reports differ significantly from analyst expectations.
Positive surprises - earnings that beat the pre-report forecasts - tend to drive stock prices higher, while negative surprises send them lower.
The bigger the surprise, the more rapid and dramatic the move becomes.
Will JPMorgan (NYSE: JPM) Earnings Surprise?
One prime candidate for an earnings surprise in this cycle is JPMorgan Chase.Usually considered one of the strongest companies in the financial sector, JPM would normally be expected to surpass the pre-report estimates. After all, the company has beat earnings in three of the past four quarters - including an 11% surprise in the January-March period, when earnings came in at $1.31 a share vs. a projected $1.18.
However, the company has been rocked by controversy following revelations that it suffered more than $4 billion in trading losses on what JPM called a "hedging strategy" but others described as an outright "bet" on interest rates.
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JPM Losses Get Worse and Worse
JP Morgan Chase (NYSE: JPM) cannot escape its enormous loss on a credit derivatives bet gone bad.
The London Whale trade, as it is informally known, was originally reported as a $2 billion loss. But now The New York Times has reported the loss will total $9 billion -- and maybe more.
But Money Morning subscribers were well aware of the possibility JP Morgan's losses would exceed $4 billion or $5 billion. Money Morning Capital Wave Strategist Shah Gilani repeatedly said this "hedge" was really a bet, and was among the first to predict how large the losses would eventually turn out to be.
Gilani, who hosts the radio show "On the Money!" in addition to his Money Morning duties, had this to say about JP Morgan's ill-conceived bet:
"What it does is shine the light on what is actually happening. It's not the loss in terms of the money, it's the loss in terms of faith for [CEO] Jamie Dimon, that he has been pushing hard against the regulators... in particular to the Volcker Rule, saying there is no need for it and it and that banks have a good handle on their risk... and that we (JP Morgan) don't have a problem with it because we are just hedging."
Just hedging? Gilani certainly doesn't think so.
Gilani said that statement is a flat-out lie and that Dimon has basically lied to Congress in his testimonies over the past weeks.
In the testimony before the House Financial Services Committee last week, Dimon said the London unit had "embarked on a complex strategy" that exposed the bank to greater risk even though it had intended to minimize risk.
The London Whale trade, as it is informally known, was originally reported as a $2 billion loss. But now The New York Times has reported the loss will total $9 billion -- and maybe more.
But Money Morning subscribers were well aware of the possibility JP Morgan's losses would exceed $4 billion or $5 billion. Money Morning Capital Wave Strategist Shah Gilani repeatedly said this "hedge" was really a bet, and was among the first to predict how large the losses would eventually turn out to be.
Gilani, who hosts the radio show "On the Money!" in addition to his Money Morning duties, had this to say about JP Morgan's ill-conceived bet:
"What it does is shine the light on what is actually happening. It's not the loss in terms of the money, it's the loss in terms of faith for [CEO] Jamie Dimon, that he has been pushing hard against the regulators... in particular to the Volcker Rule, saying there is no need for it and it and that banks have a good handle on their risk... and that we (JP Morgan) don't have a problem with it because we are just hedging."
Just hedging? Gilani certainly doesn't think so.
Gilani said that statement is a flat-out lie and that Dimon has basically lied to Congress in his testimonies over the past weeks.
In the testimony before the House Financial Services Committee last week, Dimon said the London unit had "embarked on a complex strategy" that exposed the bank to greater risk even though it had intended to minimize risk.
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The JPMorgan (NYSE: JPM) Losses: Here’s What Happened
Yesterday's announcement by JPMorgan Chase & Co. (NYSE: JPM) that it lost $2 billion on a "hedge" position is not only surprising, it's frightening.
I'll try and make this short and easy to understand, but the truth is that it's complicated. If we have a decent idea about what happened (and I do), it's bad. And if it's a tip-of-the-iceberg thing (which I don't believe it is), it could be really, really bad.
Investors put on hedges all the time. In fact, in our investment services like the Capital Wave Forecast we put on essentially the same type of "economic" hedges that JPM CEO Jamie Dimon is saying blew up on them. The economic hedges we put on are essentially hedges against long positions we hold.
For example, if I see some potential danger ahead, then I recommend we buy some protection, like buying the VIX in anticipation of rising volatility, or buying puts on broad market indexes.
The broad protective measures we take are economic hedges because they are not specific hedges designed to hedge potential loss in any one position. For example, if we owned JPM stock and we wanted to hedge our position, we might buy puts on JPM, or sell calls, or employ another specific hedge against our long position.
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I'll try and make this short and easy to understand, but the truth is that it's complicated. If we have a decent idea about what happened (and I do), it's bad. And if it's a tip-of-the-iceberg thing (which I don't believe it is), it could be really, really bad.
Investors put on hedges all the time. In fact, in our investment services like the Capital Wave Forecast we put on essentially the same type of "economic" hedges that JPM CEO Jamie Dimon is saying blew up on them. The economic hedges we put on are essentially hedges against long positions we hold.
For example, if I see some potential danger ahead, then I recommend we buy some protection, like buying the VIX in anticipation of rising volatility, or buying puts on broad market indexes.
The broad protective measures we take are economic hedges because they are not specific hedges designed to hedge potential loss in any one position. For example, if we owned JPM stock and we wanted to hedge our position, we might buy puts on JPM, or sell calls, or employ another specific hedge against our long position.
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Is JPMorgan (NYSE: JPM) Setting Delta Airlines (NYSE: DAL) Up For a Crash?
The devil is in the details.
That's what I thought when I read that Delta Airlines (NYSE: DAL) may be hopping into bed with JPMorgan Chase (NYSE: JPM).
According to various reports, Delta is in talks to purchase the idled "Trainer" refinery facility in Philadelphia with assistance from JPMorgan Chase as its financier.
On the surface, the deal seems to make perfect sense. Jet fuel is very expensive.
Delivering jet fuel to New York Harbor would have cost you $1.94 a gallon five years ago. Today it's $3.12, or 60.82% higher according to Bloomberg.
Owning a refinery would be a good way to lock up supplies and keep fuel costs down in today's world.
It's so smart I'd watch for United, British Airlines and Lufthansa to do the same in short order. Perhaps even the regional carriers will get in on the action at some point, too.
All are "route heavy" on the Eastern U.S. seaboard where many refineries have to pay for more expensive imported Brent crude because they can't access less expensive West Texas blends or alternatives coming from North Dakota shale fields.
But what the frack?
Ordinarily, airlines would simply hedge price increases like this in the futures markets.
So there must be something else at work that would make Delta and presumably other carriers so desperate they're willing to enter the refinery business. After all, it's a tough business -- even for oil companies.
Two thoughts come to mind specifically about Delta: a) its geographic concentration, and b) its credit rating, which stinks, may be so bad the airline can't cost effectively hedge in the open markets.
Few people realize this but several major oil companies, including Sunoco, Hess Corp, Valero and ConocoPhillips -- just to name a few -- are planning to close, idle or otherwise shut down refineries on the east coast.
That would remove 51% of U.S. East Coast refinery capacity from the equation by some accounts.
This means that delivering fuel into the northeast corridor's airports is going to become especially problematic and more expensive.
In that sense, one could argue that Delta is taking prudent steps to secure its own supplies while building in defenses against higher prices ahead.
I can't find fault with that given that every penny increase per gallon costs Delta $40 million more on an annualized basis, according to Bloomberg. I would be thinking along the same lines.
But I don't "buy" it even though the airline spent $11.8 billion on fuel last year and understandably wants to save money.
Here's where it gets interesting (and I get suspicious).
That's what I thought when I read that Delta Airlines (NYSE: DAL) may be hopping into bed with JPMorgan Chase (NYSE: JPM).
According to various reports, Delta is in talks to purchase the idled "Trainer" refinery facility in Philadelphia with assistance from JPMorgan Chase as its financier.
On the surface, the deal seems to make perfect sense. Jet fuel is very expensive.
Delivering jet fuel to New York Harbor would have cost you $1.94 a gallon five years ago. Today it's $3.12, or 60.82% higher according to Bloomberg.
Owning a refinery would be a good way to lock up supplies and keep fuel costs down in today's world.
It's so smart I'd watch for United, British Airlines and Lufthansa to do the same in short order. Perhaps even the regional carriers will get in on the action at some point, too.
All are "route heavy" on the Eastern U.S. seaboard where many refineries have to pay for more expensive imported Brent crude because they can't access less expensive West Texas blends or alternatives coming from North Dakota shale fields.
But what the frack?
Ordinarily, airlines would simply hedge price increases like this in the futures markets.
So there must be something else at work that would make Delta and presumably other carriers so desperate they're willing to enter the refinery business. After all, it's a tough business -- even for oil companies.
Two thoughts come to mind specifically about Delta: a) its geographic concentration, and b) its credit rating, which stinks, may be so bad the airline can't cost effectively hedge in the open markets.
Few people realize this but several major oil companies, including Sunoco, Hess Corp, Valero and ConocoPhillips -- just to name a few -- are planning to close, idle or otherwise shut down refineries on the east coast.
That would remove 51% of U.S. East Coast refinery capacity from the equation by some accounts.
This means that delivering fuel into the northeast corridor's airports is going to become especially problematic and more expensive.
In that sense, one could argue that Delta is taking prudent steps to secure its own supplies while building in defenses against higher prices ahead.
I can't find fault with that given that every penny increase per gallon costs Delta $40 million more on an annualized basis, according to Bloomberg. I would be thinking along the same lines.
But I don't "buy" it even though the airline spent $11.8 billion on fuel last year and understandably wants to save money.
Here's where it gets interesting (and I get suspicious).
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