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JPM Reports Record Revenue Offset By Surprise Jump In Credit Loss Provisions

JPM Reports Record Revenue Offset By Surprise Jump In Credit Loss Provisions

JPMorgan has officially launched the Q4 earnings season with earnings that were broadly stronger than expected, reporting record adjusted profits of $12.1 BN (which.

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JPM Reports Record Revenue Offset By Surprise Jump In Credit Loss Provisions

JPMorgan has officially launched the Q4 earnings season with earnings that were broadly stronger than expected, reporting record adjusted profits of $12.1 BN (which however include $2.9BN in reserve releases) although a higher than expected loan loss reserve provision initially hit the stock, sparking the usual question of what does JPM - the largest US bank - know that the rest of us don't.

Here is what JPM reported for Q4:

  • EPS $3.79 vs. $2.57 Y/Y, beating est. of $2.62
  • Record adjusted net income $12.1, up 42% Y/Y
  • Adjusted Revenue of $30.2BN vs $29.2BN Y/Y, up 3.3% Y/Y, and also beating est. of $28.6

Adding to the bullish picture, JPM's trading desk as usual had another stellar quarter, with FICC, equities and IBanking all beating expectations:

  • FICC sales & trading revenue $3.95 billion, +15% y/y, estimate $3.92 billion, driven by "strong performance in Credit, Currencies & Emerging Markets and Commodities"
  • Equities sales & trading revenue $1.99 billion, +32% y/y, estimate $1.79 billion, driven by "strong client activity in derivatives and Cash Equities"
  • Investment banking revenue $2.50 billion, +37% y/y, estimate $2.06 billion

Curiously, despite the surge in trading revenue, the company slashed trader comp again: "Expense of $4.9B, down 9% YoY,  driven by lower compensation and lower legal expense." How long before JPM's superstar traders start quitting?

But while the top and bottom line numbers were all stronger than expected, what surprised traders was the unexpectedly high credit loss provision, which at $1.89BN was half a billion higher than the $1.39BN expected.

This was well above the loss provision recorded last quarter, and the highest in recent history except the covid crisis quarters:

Adding to the confusion, JPM also unveiled a $2.9 billion reserve release in Q4, bringing total reserves from $33.8BN to $30.8BN in Q4:

Since June 30 the bank has released $3.6 billion from its allowance for credit losses, which means that - all else equal - the bank’s view on credit has gotten rosier (with the added benefit that the money flows right to the bank’s bottom line). However, In his prepared remarks, Jamie Dimon warned of "near-term uncertainty", and cautioned that the reserve release was not to be taken as "core or recurring profits":

“JPMorgan Chase reported strong results in the fourth quarter of 2020, concluding a challenging year where we generated record revenue, benefiting from our diversified business model and dedicated employees. While we reported record profits of $12.1 billion, we do not consider the reserve takedown of $2.9 billion to represent core or recurring profits – essentially reserve calculations, while done extremely diligently and carefully, now involve multiple, multi-year hypothetical probability-adjusted scenarios, which may or may not occur and which can be expected to introduce quarterly volatility in our reserves. While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists.”

Dimon also had some positive comments, seeing a solid improvement among US consumers:

“Within our consumer lending franchise, auto and retail mortgage originations were both up more than 20%. Consumer spending continued to recover, as reflected in combined debit and credit card spend being up for the full quarter.”

Commenting on the results, Opimas CEO Octavio Marenzi wrote that "these are stellar earnings from JPMorgan Chase and will set the pace for other banks to come. As we have said for some time, JPMorgan appeared to over-reserve against credit losses in Q1 and Q2 in response to Covid, and now these reserves are being released, boosting the bank’s earnings."

JPM also provided an update on its latest payment deferrals, which showed that while $24.2Bn of consumer loans (across residential, auto and credit card), remain in deferral, or 2.9% of total, some 91% of customers have no exited payment deferrals and are current.

An interesting tangent: as Bloomberg notes, the bank’s marketing spend increased 54% from the third quarter to $725 million.

It’s down from a year ago, but after two straight quarters of spending less than $500 million on marketing, the increase in Q4 suggests that the bank sees an opportunity to grow its customer base.

JPM also dedicated several slides to the surge in deposits, which as we have explained in previous years, is entirely due to QE. This is what JPM said: "Quantitative easing (“QE”), as part of the extraordinary response to COVID-19, has driven significant deposit growth in the U.S. banking system"

Why is this important? Because as Bloomberg notes, total assets rose 4% from the third quarter, and are up a whopping 26% from this time last year with deposits growing by 7% from the third quarter (and 37% from a year earlier!). But the same is not true of JPM's loans: the bank’s loans-to-deposits ratio fell to 47%. It’s down from 64% this time a year ago.

Looking ahead, JPM sees 2021 Net Interest Income of $55.5BN, up from $54BN previously, and up from the $55.0BN in 2020.  JPM also  sees Q1 Net Interest Income of $13.6BN, beating exp. of $13.25BN

Offsetting this, however, JPM also now expects a big jump in 2021 noninterest expense, which it sees rising to $68BN + on $2.4BN of investments:

While the stock dipped initially, as traders were surprised by the unexpected jump in loan loss provisions it has since resumed its upward levitation, as attention turned to the latest spectacular results from JPM's trading desk:

One possible reason for the rebound: the bank provided some more details on its $30 billion buyback authorization, which it said will resume in the first quarter with a net capacity of $4.5 billion.

Full Q4 earnings presentation below (pdf link):

JPM Q4 2020 Presentation by Zerohedge

Tyler Durden Fri, 01/15/2021 - 07:30

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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3 hours ago

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March 9, 2024

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Spread & Containment

Another beloved brewery files Chapter 11 bankruptcy

The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.

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March 9, 2024

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Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.

It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business. 

And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.

During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.

Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.

Overall beer sales have fallen.

Image source: Shutterstock

Covid is not the only reason for brewery bankruptcies

While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,

Beer sales have fallen to their lowest levels since 1999 and some industry analysts

"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.

Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.

Another brewery files Chapter 11 bankruptcy

Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11. 

"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained. 

Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors. 

The popular brewery operates three taprooms and sells its beer to go at those locations.

"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.

The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).

Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.

 

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