15 January 2009

The Worst Is Yet to Come (But We Beat the Numbers) - J. P. Morgan

Interesting quotes from Jamie Dimon, CEO of J.P. Morgan, the Fed's instrument of policy, their house bank, king of the derivatives pyramid, as the world is amazed that they beat the EPS numbers again this morning, at least on paper.

The problem is not so much the banking system and a lack of confidence in it. They do not deserve any. Our financial system has become a shell game, an extended accounting fraud, that permeates and selectively destroys whole segments of the real economy.

The problem is that the average consumer in the United States is a wage earner, and their real wages have been stagnating for the past twenty or more years, despite a rosier-than-reality set of CPI figures from the last two administrations.

The fact that most in New York and Washington have not quite realized yet is that the average American consumer is exhausted, tapped out, broke.

Providing easier credit terms, new sources of debt to feed the machine, may stretch this out a bit longer, may cushion the impact as the overloaded and imbalanced economy hits the wall, butit will do nothing to create sustainable growth.

Unless and until something is done to address the real median wage, to provide sources of income, rather than fresh sources of debt, to the middle class, there will be no recovery other than more monetary bubbles, that will be increasingly fragile and destructive in their collapse, ultimately testing the foundations of democracy.

The economic, and then the political, situation in the United States will deteriorate, perhaps much more rapidly than most would expect or even allow, unless something is done to break this cycle of debt and wealth transference, this illusion of vitality and stability.

JPMorgan chief says worst of the crisis still to come
Wed Jan 14, 10:13 pm ET

LONDON (AFP) – The chief executive of US bank JPMorgan Chase, Jamie Dimon, told the Financial Times on Thursday that the worst of the economic crisis still lay ahead as hard-hit consumers default on their loans.

"The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009," he told the business daily.

"In terms of our sector, we expect consumer loans and credit cards to continue to get worse."

Dimon said the bank -- which bought rivals Bear Stearns and Washington Mutual last year -- was prepared for a deterioration in consumer-orientated businesses but if things were worse than expected, it would have to cut costs further.

The interview was published after a fresh wave of selling hit US and European stock markets Wednesday, as an unrelenting flow of bad economic and corporate news sparked fears of a deepening global downturn.

JPMorgan Profit Drops 76 Percent, Less Than Analysts Estimated
By Elizabeth Hester

Jan. 15 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, said profit fell 76 percent, beating analysts’ estimates, as the company navigates the credit crisis with more success than most of its peers.

Fourth-quarter net income was $702 million, or 7 cents a share, compared with $2.97 billion, or 86 cents, a year earlier, the New York-based bank said today in a statement. Fourteen analysts surveyed by Bloomberg had an average earnings estimate of 1 cent a share.

JPMorgan’s $20.5 billion of writedowns, losses and credit provisions through the third quarter were less than a third of those at Citigroup Inc., which was forced to sell control of its Smith Barney brokerage to Morgan Stanley for $2.7 billion this week. Chief Executive Officer Jamie Dimon has used JPMorgan’s relative strength to acquire troubled rivals, including Bear Stearns Cos. in March and Washington Mutual Inc. in September.

“JPM is better positioned against deteriorating loan portfolios than many of its peers given its strong loan-loss reserves,” KBW Inc. analyst David Konrad wrote in a Jan. 14 research note.

JPMorgan, which moved up its earnings announcement by six days, is the first of the largest U.S. banks to disclose fourth- quarter figures. New York-based Citigroup reports tomorrow, and Bank of America Corp., which bought Merrill Lynch & Co. two weeks ago, is scheduled to release results on Jan. 20. San Francisco- based Wells Fargo & Co. will follow on Jan. 28 as it works to absorb Wachovia Corp.

...Federal Reserve officials and President-elect Barack Obama have said more government help will be needed to shore up the U.S. financial system.

Fed Chairman Ben S. Bernanke said Jan. 13 that banks’ holdings of hard-to-sell investments raise questions about the companies’ underlying value, and called for the government to take on or insure the assets. Obama is deciding how to use the remaining $350 billion of the $700 billion Troubled Asset Relief Program that Congress approved in October, with some Democrats saying the plan should favor homeowners and community banks over larger financial-services companies.