SCC Housing Market Blog

From: Bank-Implode.com
Posted on July 17th, 2008 in BREAKING NEWS!

The covert bail out of JP Morgan continues unabated along with those of Fannie Mae, Freddie Mac and the rest of the finical sector, all partially cloaked under the fog of Morgans fiscal second quarter 2008 earnings report. After carefully releasing estimates to analysts the company came out and beat those estimates this morning and that is what the financial media would have investors believe is responsible for todays rise in the stock and the sector.

JPMorgan posted a 53% plunge in second-quarter net income Thursday morning. Credit-loss provisions more than doubled, and its investment bank cut the value of leveraged-loan and mortgage-related securities by an additional $1.1 billion.

However, JPMorgan’s earnings per share, at 54 cents, beat analysts’ average expectations of 44 cents, as calculated by Thomson Reuters. Revenue of $18.4 billion for the quarter exceeded expectations of $16.55 billion. JPMorgan’s stock was up 10% in morning trading.

The jump in the share prices of JPMorgan Chase and other bank stocks was likely a reaction to “the lack of doomsday outcomes,” David Trone, an analyst with Fox-Pitt Kelton Cochran Caronia Waller wrote in a research report. But he warned, “we remain somewhat cautious about calms before storms, as consumer and commercial losses will likely increase into early 2009, if not longer.”

Not likely at all David! The jump in the share prices of JPMorgan Chase and other bank stocks was likely a reaction to the SECs restrictions of short selling on all but two stocks in the sector and the socialization of the sectors favorite toxic mortgage dumping grounds, Fannie Mae and Freddie Mac.

I have news for Bernanke and the SEC. This won’t work. China had short sale restrictions on and it did not stop the Shanghai index from falling over 50%. Insolvency cannot be cured by short sale restrictions and many of those companies are insolvent.

If you really think Morgan has turned the corner, just consider the things that have to happen before the bottom can be called, that have not happened yet, that are beging to happen, beging to happen to JPMorgan.

J.P. Morgan Chase said on Thursday that losses on its $47 billion portfolio of prime mortgages could triple in coming quarters because of the slump in house prices in previously hot markets such as California, Florida and Arizona.

A complete freeze on short sales won’t save The House of Morgan when those PRIME loans begin to default. Todays stock spike was pure short covering and once the market sees the implosions in the portfolios of Morgans prime mortgage and commercial real estate and credit card and the sacrifice of first born sons it will take more than an act of Congress to bring new longs into the stock.

When all the hype and hoopla are finally spun and done the only thing share holders have to hold onto is that 53% cliff dive in second-quarter net income, loan losses provisions of $3.5 billion more than doubled from a year ago, a return on equity crashing to 6% from 14% a year ago and the certain knowledge that a lot more went wrong in the quarter than went right.

Nor can the company reliy on the broader economy to save it.

* Investment banking swung to a $785 million loss, dropping 67 percent after it wrote down $1.1 billion in unsold buyout loans and complex mortgage related securities. Trading revenue was weak in both the equities and fixed-income divisions.
* Chase Card Services, the bank’s big credit card arm, saw second-quarter profit fall 67 percent, to a $509 million loss as charge-offs continued rising. Its loss rate climbed to about 5 percent in the second quarter.
* Chase Retail Services, the bank’s consumer unit, reported a $179 million loss after a 23 percent drop in profit. The division was mired by losses on home equity loans as well as mortgages as more borrowers stopped making their monthly payments.

* The asset management division booked a $395 million profit, down 20 percent from last year, despite a influx of new money. Revenue of $2.1 billion was down 3 percent because of lower performance fees.

and what augurs worst of all,

Chase’s auto finance arm also had higher loan losses, as more consumers find their budgets stretched by higher gas and food prices.

The reality is that JPMorgan would not exist today if not for the fraudulent FED engineered bail out of Morgan last March by guaranteeing a $29 billion disguised as a loan to facilitate the buy out of Bear Stearns. The fact that the bank was bailed out once and its CEO is a FED board member are the storongest, make it only argument insureing the companys future, but it is the strongest argument one can have.