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As I said when the results came out before I even looked at the numbers, JPM raided their loss reserves in order to make a great deal of the London Whale loss go away and report there forecast earnings number to the penny.
They also made some fairly expansive assumptions in order to bridge the gap.
http://hat4uk.wordpress.com/2012/07/15/confirmed-at-last-the-attempted-cover-up-of-how-jp-morgan-torpedoed-lehman-brothers/
http://www.zerohedge.com/news/how-kill-jpms-cio-operation
Submitted by Tyler Durden on 07/14/2012 12:23 -0400
A quick glance at the chart above shows that when it comes to traditional banking aspects, there is a roughly $400 billion mismatch between traditional liabilities (Deposits, which amount to $1,116 billion), and assets (Loans, which are $693 billion). The balance of the balance sheet consists of various shadow bank transformation operations, whereby $982 billion in shadow liabilities (yes, there is a reason why we say that rehypothecated, unregulated, and uninflationary-until-replaced-with-deposits Shadow liabilities are just as important as deposits in the grand scheme of things when it comes to funding matched ROA) fund $965 billion in shadow bank asset operations (including reverse repos, Prime Broker ops, trading assets, LOB cash and other).
14 JULY 2012
How Jamie Dimon and 'Flexible Accounting' Hid JPM's London Whale Loss
"I am making an enemy here when I say something like this, but the Fed should replace Jaime Dimon. They should replace him for utter failure of corporate governance and telling the truth too slowly.”
Janet Tavakoli
As I said when the results came out before I even looked at the numbers, JPM raided their loss reserves in order to make a great deal of the London Whale loss go away and report there forecast earnings number to the penny.
They also made some fairly expansive assumptions in order to bridge the gap.
CNN/Fortune
How Jamie Dimon hid the $6 billion loss
By Stephen Gandel, senior editor
July 13, 2012
A mixture of accounting moves and rosy assumptions appear to have masked JPMorgan's London Whale loss.
FORTUNE -- Here is perhaps the most amazing thing about JPMorgan Chase's (JPM) $5.8 billion trading loss: Take a look at the firm's overall results, and it's like the London Whale's misstep, one of the largest flubs in the history of Wall Street, never happened.
Back in mid-April, about two weeks before talk of the trading losses emerged, JPMorgan was expected to earn $1.21 a share in its second quarter. On Friday, JPMorgan reported that it had, Whale and all, earned exactly that.
How the bank appears to have offset the huge trading loss is a prime example of how complex and malleable bank profits actually are, and how much they should be believed. JPMorgan's quarter should give fodder for accountants to talk about for some time.
"Yes, I have seen these results, but I have also seen how the sausage is made and I am worried that I might get food poisoning in the future," Mike Mayo of Credit Agricole Securities and author of the book Exile on Wall Street told Dimon in a meeting with analysts following the bank's earnings release.
Sure some of JPMorgan's businesses were strong. Profits in its mortgage operations, helped by falling interest rates, rose by nearly $1.3 billion. But a good deal of JPMorgan's earnings came from some shifting of losses and an assumption that things for the bank, and the economy in general, are about to get a good deal better. That assumption might prove right, but it could also add to losses in the future.
So how do you make a nearly $6 billion loss go away?
First stop taxes. The bank said that the London Whale's blunder cost the bank $4.4 billion in the second quarter alone. But that's before taxes. After it pays taxes, though, JPMorgan says the loss will shrink to just over $2.7 billion, which means the bank plans to take a $1.7 billion write off from Uncle Sam. Like any loss, banks are allowed to use trading blunders to offset taxable profits elsewhere in the bank. The question is the rate. At $1.7 billion, JPMorgan is writing off roughly 38% of the loss. That's not that out of line with the U.S. corporate tax rate, but it's a far larger percentage of profits than most companies actually pay. Nonetheless, on taxes alone, the bank was able to shrink the London Whale's wake to $4.1 billion.
We haven't left the firm's vaunted chief investment office yet. CEO Jamie Dimon has long said the portfolio is safe and that if he were to liquidate it today he could produce an $8 billion gain for the bank. In the second quarter, he dipped into some of that. London Whale aside, the CIO took a $630 million gain. Now we're down to $3.5 billion.
Next stop loan losses. Banks have to put money away for loans they believe are going to go bad. But banks can lower their expenses by putting away less money for future loan losses. In the second quarter, the bank put away just over $200 million for future loan losses. That was not only the lowest amount the bank had set aside in any three month period since the start of the financial crisis, it was the lowest by far. A year ago, the loan loss provision was $1.8 billion.
What's more, not only did the bank put away less money for future loans, it also pulled back money it had put away in the past. And any money you take out of your loan loss reserves the accountants let you send right to your bottom line. It appears $1.3 billion, or about 28% of the company's total second quarter profit, came from this move, which is again only real earnings to accountants....
Read the rest here.
and there have to be many bankers just waiting for JP Morgan to crash and burn after their dirty deeds over the years...
CONFIRMED AT LAST: The attempted cover-up of how JP Morgan torpedoed Lehman Brothers
As an early propagator of the allegation that JP Morgan Chase deliberately hastened the Lehman collapse, the Slog finds itself vindicated three years on by a successful regulator action against JPM, and contemporary documentation.
“And then when you have the suckers by the balls, you squeeze just like this”
Around the time of the Lehman disaster, a senior insider at the firm relayed to me what seemed an astonishing allegation: that in the weeks prior to the eventual collapse, JP Morgan deliberately withheld huge monies owed to Lehman in order to make the bankruptcy a certainty from which they could benefit. I relayed this story to another contact the following year, and he not only corroborated the charge, he also said he was sure Barclays had done the same. The now disgraced Barclays CEO Bob Diamond took over Lehman in a fire sale only weeks later (using taxpayers’ money as a bridging loan to do it) and rapidly built up a commanding position for the division he then headed up, Barcap – the investment arm of the bank.
Now, more than three years later, regulators have penalised JPMorgan for actions tied to Lehman’s demise. The bank settled the Lehman matter and agreed to pay a fine of approximately $20 million. The action took place because of Morgan’s ‘questionable treatment of [Lehman] customer money’: regulators accused JPMorgan of withholding Lehman customer funds for nearly two weeks. So it had been true after all.
Jamie Dimon’s Morgan Chase dodged and dived on this one for three years in an attempt to smooth over the tracks. As late as April this year, the Pirate insisted that the ‘monies involved were small’: but that doesn’t tally with this Wall Street Journal snippet from the time as follows:
‘Lehman Brothers Holdings Inc., the securities firm that filed the biggest bankruptcy in history yesterday, was advanced $138 billion this week by JPMorgan Chase & Co. to settle Lehman trades and keep financial markets stable, according to a court filing.’
Advancing cash to keep the markets stable is simply double-talk bollocks: many observers are sure this was the Lehman trades money withheld by JPM. The Lehman administrators continued to air their grievances about it, and in late May 2010 the bankruptcy estate of Lehman Brothers Holdings, Inc. filed suit against JPMorgan Chase, alleging that JPMorgan’s actions in the weeks preceding bankruptcy were wrongful. The claims arose from amendments and supplements to the Clearance Agreement between Lehman and JPMorgan in the weeks immediately preceding the bankruptcy. (In a nutshell, JPM changed the terms without notice to include onerous requirements for massive collateral against giving Lehman its own money back – a form of crooked logic that only a banker could construct. The weight of this collateral requirement on already serious debts took Lehman Brothers from intensive care to the Pearly Gates).
Just before this suit was filed, I took a small risk by including in a Slogpost of 13th March 2010 the phrase ‘former Lehman employees rendered jobless by management hubris and JP Morgan’. Now the full extent of the cannibalism indulged in by Morgan has come to light…although Barcap’s role remains in a murky penumbra somewhere. But typically, by coughing up twenty million bucks to the Federal Government, the predatory Morgan Chase has got away with ‘not admitting guilt’. Disgraceful. Think of it this way: $20m to ice a major appointment…that has to be the bargain of the decade.
A few more extracts from the 2010 Slogpost make interesting reading today:
‘The top-ranking British law practice Linklaters signed off on controversial accounting practices that let Lehman Brothers shift billions of dollars of debt off its balance sheet. This masked the perilous state of the bank’s finances, and for many years misled both investors and regulators….Not only has crooked dealing been a clear and present carbuncle on the City’s reputation for decades, ancillary professional concerns have long been up to their necks in illegal collusion in such activities….Time and again, accusations of wrongdoing are met with appalled sanctimony by those routinely involved in serious misdeeds….only to result in even worse revelations…..And equally, the sentences handed out to miscreants justifiably evoke cries of ‘one law for the rich and another for the poor’.’
Well, nothing changes. And not much changed in Morgan the Pirate’s behaviour either: on 20th May 2009, so a CNBC story claimed, Washington Mutual (Wamu) sought billions in damages following its acquisition by Morgan Chase, via a class action suit littered with phrases like ‘far below market value’, ‘premeditated plan’, ‘designed to damage’, ‘purchase…on the cheap’, ‘wrongful conduct’, ‘sham negotiations’, ‘misusing confidential information’, ‘violation of confidentiality agreement’, ‘unfair advantage’, and ‘fire sale prices’. Nothing to see there, then. On June 24th last year, an Appeals Court revived the action – whch clearly has some merit. As far as I know, it continues to rumble on today, to the benefit of lawyers….just for a change.
Hat-tip to US Slogger Butch Cassidy for alerting me to progress on the original Lehman scam. If anyone has anything substantial on Diamond Bob’s role in it, the address as always is jawslog@gmail.com
Poscript: when I suggested in a 2007 edition of the magazine Market Leader that robust Lehman results hid an overdependence on merger and acquisition business, I did not for a second suspect wrongdoing – only myopia. But I can promise you, no editor has ever received such a level of vitriol from Lehmans and others in the sector – coupled with bullying threats of legal action, and accusations of dangerous naivety on my part. It must rank as one of luckiest unintentional scoops of all time.
and....
http://www.zerohedge.com/news/how-kill-jpms-cio-operation
This Is How To Kill JPM's CIO Operation
While JPM may or may not have succeeded in burying its deeply humiliating CIO fiasco at the expense of two things: i) a loss of up to 25% in recurring net income and ii) Jamie Dimon proudly throwing numerous of his key tradersunder the regulatory bus as scapegoats because it took the firm until July 12 to realize that its entire CDS book was criminally mismarked, thus confirming a "weakness in internal controls" (a statement not only we, but Bloomberg'sJonathan Weil vomits all over), the truth is that one way or another, Jamie Dimon will find a way to reposition his prop trading book somewhere else, even if it means far smaller and less obtrusive profits for the next several years. Yet there is a way to virtually make sure that Jamie Dimon isnever allowed to trade as a hedge fund ever again, and in the process risk insolvency and yet another taxpayer bailout. Ironically, it is JPMorgan itself that tells everyone precisely what it is.
As the firm presents in Earnings Presentation statement Appendix, which succinctly summarizes the firm's balance sheet, all the CIO/Treasury group is, is merely an conduit to allocate excess liabilities, which in the case of JPMorgan simply means deposit cash, and use these to generate shareholder returns.
A quick glance at the chart above shows that when it comes to traditional banking aspects, there is a roughly $400 billion mismatch between traditional liabilities (Deposits, which amount to $1,116 billion), and assets (Loans, which are $693 billion). The balance of the balance sheet consists of various shadow bank transformation operations, whereby $982 billion in shadow liabilities (yes, there is a reason why we say that rehypothecated, unregulated, and uninflationary-until-replaced-with-deposits Shadow liabilities are just as important as deposits in the grand scheme of things when it comes to funding matched ROA) fund $965 billion in shadow bank asset operations (including reverse repos, Prime Broker ops, trading assets, LOB cash and other).
As such the (appropriately colored) gray-colored boxes in the asset and liability side can be netted out, and all that remains is the traditional liability-asset mismatch, which also includes a roughly $150 billion excess in equity over goodwill.
The net result is that there is $522 billion in excess assets over traditional reserve-funded liabilities (recall there is $1.55 trillion or so in excess reserves, which disturbingly for the Fed is rapidly declining), that the firm can play around with. And instead of lending these assets out, which is what the Fed and politicianswould like, JPM is merely engaging in a shadow transformation here as well, and using deposit cash to put a "delta-hedged" position to overall firm risk, which "somehow" ends up amplifying the firm's risk.
What does all this mumbo-jumbo mean, one may ask?
Simple: if it wasn't for $423 billion in excess deposits over loans, JPM wouldnot engage in any CIO/Treasury like operations.
It also means that instead of waiting for regulators to do the right thing and curb JPM from taking on high risk positions in order to reward shareholders and management using deposit cash, knowing full well that in a worst-case scenario the Fed will have no choice but to once again use taxpayer cash to bail out the firm (that whole "heads I win, tails you lose" saying), it is in everyone's hands to make it so that the firm never again engages in this high-risk behavior.
How?
Pull one's cash deposits with JPM. $423 billion to be exact.
And no more JPMorgan internal hedge fund, and no more risk of spectacular LTCM-like blow up.
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