Reggie Middleton: There’s Something Fishy at the House of Morgan

27 Apr

It’s a bit thick for those who don’t spend a lot of time reading these sorts of things, but well worth the reading.

Reggie’s ‘extremely contrarian position’ of last year has now become fact as his article explains.

Get your head around reality: the real estate market still crashing, banking crisis re-ignited, and litigation black holes loom in the banks economic model. And it’s not because the borrowers and/or government are actually really pursuing the real litigation yet, it’s just a fact of the aftermath of the crisis… but that’s just the beginning of the story, according to Mr. Middleton.  And we have to say, we agree with his assessment.


There’s Something Fishy at the House of Morgan

Reggie Middleton's picture

Submitted by Reggie Middleton on 04/27/2011 09:23 -0400

I invite all to peruse the mainstream financial media and sell side Wall Street’s take on JP Morgan’s Q1 earnings before reading through my take. Pray thee tell me, why is there such a distinct difference? Below are excerpts from the our review of JP Morgan’s Q1 results, available to paying subscribers (including valuation and scenario analysis): File Icon JPM Q1 2011 Review & Analysis.

Here we go…

There’s Something Fishy at the House of Morgan



JPMorgan’s Q1 net revenue declined 9% y-o-y ad 3% q-o-q to $25.2bn as non-interest revenues declined 5% y-o-y (down 5% q-o-q) to $13.3bn while net interest income declined 13% y-o-y and (-2% q-o-q) to $12.5bn. However, despite decline in net revenues, noninterest expenses were flat at $16bn. Non-interest expenses as proportion of revenues went was 63% in Q1 2011 compared with 58% a year ago and 61% in Q4 2010. However, due to substantial decline in provision for credit losses which were slashed 83% y-o-y (63% q-o-q) to $1.2bn from $7.0bn, PBT was up 78% y-o-y (15% q-o-q).

Lower reserve for loan losses and consequent decline in Eyles test (an efficacy of ability to absorb credit losses) coupled with higher expected wave of foreclosures which is masked by lengthening foreclosure period and overhang of shadow inventory, advocate a cautionary outlook for banking and financial institutions. As a result of consecutive under-provisioning since the start of 2010, JP Morgan’s Eyles test have turned negative and is the worst since at least the last 17 quarters. The estimated loan losses after exhausting entire loan loss reserves could still eat upto 8% of tangible equity.#429e00;”>


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