October 15, 2008 – 8:31 pm

After devouring the rotting carrion of Bear Stearns, JP Morgan was soon in hot pursuit of Washington Mutual. Although it may regret it in the long run, Morgan finally took down the lumbering beast last month. Now the celebrating is over and JP Morgan must once again up chuck billions in write-downs and credit-related losses.

JPMorgan Chase & Co. (JPM) reported an 84% plunge in third-quarter net income amid $3.6 billion in write-downs and $640 million in losses from last month’s acquisition of Washington Mutual as the banking giant saw continued deterioration in its home-lending portfolio.

In addition the banks level 3 tide is rising high.

Level 3 assets represented 6 per cent of its total assets at September 30, JP said. The increase was primarily due to a $15.2bn transfer of mainly triple-A rated CLOs ‘backed by corporate loans for which liquidity decreased and market activity was limited’ and $5.8bn of ‘purchased mortgage servicing rights related to the Washington Mutual transaction’

Additionally on a nine-month basis the level 3 assets rose by $57 billion.

For a further discussion of changes in level 3 instruments, see Note 3 on pages 98—109 of this Form 10-Q.

Well That sound cryptic, but banlimplode.com puts it at t $6.0B + $1.3B = $7.3B

Then chief executive officer Jamie Dimon opined:

“Given the uncertainty in the capital markets, housing sector and economy overall, it is reasonable to expect reduced earnings for our firm over the next few quarters.”

The uncertainty in the capital markets, housing sector and economy overall was created by the reckless lending habits your bank employed.

Still, he had to add:

“we feel well-positioned to handle the turbulent environment and, most importantly, to continue to invest in our businesses and serve our clients well.”

J.P. Morgan has been well-positioned since the meeting at Jekyll Island, but you are now just like your remaining competitors, positioning yourself to be too big to fail.

JPMorgan – which was vaulted into first place in nationwide deposits following its acquisition of beleaguered mortgage lender WaMu – reported net income of $ 527 million, or 11 cents a share, down from $3.37 billion, or 97 cents a share, a year earlier.

And there you have it. That’s just what we’re talking about. Size and market share going up, profits and profitability going down!  Now you may be inclined to wait and give it a chance, but that would mean giving WaMu a chance to regain life and carry a profit.  In that case, you may as well believe that mortgagee’s are going to pay the quickly-resetting option ARMS that WaMu gave Morgan. Or perhaps you might believe that housing prices will appreciate soon. Or you may wish to place your faith in Santa Klaus or the Tooth Fairy.  Does JP Morgan believe it?

Credit-loss provisions more than doubled from the prior year to $3.81 billion and rose 10% from the second quarter.

It’s ok, JP Morgan, we don’t believe it either. But wait, this guy just won’t quit:

As the banking landscape has rapidly changed amid the financial crisis, JPMorgan has been able to greatly expand, with its strong balance sheet allowing it to take advantage of the crisis. Twice this year, JPMorgan got large companies at discount prices as buyer of last resort. And Tuesday, it was named among nine banks the U.S. government said it would give capital injections as it tries to revive the banking sector.

In other words, the balance sheet is weak and carrying Washington Mutual weakens it even further!

Furthermore, let’s get one thing straight. JP Morgan gutted Bear Stearns. They were not a buyer of last resort.

Washington Mutual had other buyers, TPG Capital in particular, but pressure from Paulson made it clear that WaMu belonged to Morgan.
JP Morgan’s strongest financial asset is the certainty that it will be bailed out:

The cost of protecting corporate bonds from default fell in anticipation the Bush administration will announce plans to invest in nine U.S. banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc.

The Treasury will spend about $125 billion in its latest attempt to shore up confidence in the financial system and will guarantee banks’ newly issued senior unsecured debt for three years, people familiar with the proposal said.

“This should help ease some of the immense stress in credit markets,” said Jim Reid, the London-based head of fundamental credit strategy at Deutsche Bank AG. Markets remain at an “incredibly dysfunctional level,” he said.

That’s another nice little ancillary benefit of the investment at Jekyll Island, but it doesn’t make a stronger balance sheet.

And just as JP Morgan himself once publicly denounced the Federal Reserve Act of 1913 while he privately funded and supported it, Jamie Dimon rails against the political establishment which has just saved him. Let’s watch him nip at the hand that feeds him:

The top executive of JPMorgan Chase & Co. on Tuesday railed against the nation’s political leadership — but didn’t name names — saying government too often proposes solutions that appeal only to “the madness of the crowd” while letting complex issues such as energy policy go unresolved.

“We’ve seen this consistently — an oversimplifying and casting aside of issues and facts,” Jamie Dimon said in panel discussion on leadership issues at Harvard Business School, where Dimon earned an MBA in 1982.

Now you want to puke don’t you? Dimon who happens to be a Federal Reserve board member, obligingly admitted that there was blame in the air.

“There were a lot of legitimate complaints,” Dimon said, pointing to complex investment vehicles that obscured the risks many banks faced from the rise in mortgage delinquencies.

Many of those are securitized by JP Morgan Chase.

There also was dishonesty, he said.

They don’t call them a liar loans for nothing.

But he singled out energy policy and the nation’s dependence on foreign oil as problems that politicians have been unwilling to tackle in any comprehensive way since an oil shortage shook the nation in 1974.

Dimon advocated taxing oil as it’s pumped from the ground, rather than simply taxing gasoline at the pump.

Pointing the finger at someone else is something your seven year old wouldn’t even get away with.

“There were a lot of people who in hindsight made a lot of money they didn’t deserve,” Dimon said.

Wow. Did he really just say that?!?

I feel nauseous.

<>

Post a Comment