Monday, January 17, 2011

JPM Q4 Earnings

If you look beyond the reported headlines, the JPM earnings news is not as good as the street would lead one to believe.  Perhaps that is why the stock traded down pre market, rallied hard only to give up about 70% of those intraday highs at the close in very heavy volume.

Credit quality appears to be deteriorating as the "30+ day delinquency" and "net charge-off" rates are continuing to increase.  We also know that home prices have not only begun to double dip but have accelerated their slide down.  Mortgage rates moving up thanks to QE2 have further aggravated this slide.

If you look though at "allowance for loan losses" it has continued to drop and now stands at 4.6% versus 4.9% in the prior quarter and 5.0% in Q4 2009.

Repurchase reserves have remained flat at $3 billion.  I would imagine any settlement with private label repurchase agreements are going to be far higher.  During the conference call Jamie Dimon said repurchases would be a long drawn out process done on a loan by loan basis.  That is incorrect as shown by the ruling in the MBIA suit with BAC.  In that case a judge ruled that a statistical sample and NOT a loan by loan review would be used to award damages if they arise.  

Lastly, "accrued interest and accounts receivable" has continued to climb now at $70 billion.   Part of this has to be related to the increased foreclosure process (14 months now) and the moratorium.  The question then is how much constraint is this having on operating cash flow.  You need cash to pay higher dividends unlike other "questionable accounting practices" that use accounts receivable. 


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