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Jp Morgan Chase Sets Aside $5.8Bn To Pay Investment Bankers For Six Months

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Wall Street banking group JP Morgan Chase has put aside $5.8bn (£3.8bn) in the first six months of the year to pay its investment bankers around the world.

Even though revenue in the investment banking arm is down 7% on last year, the bonus pool is only 3% lower and excludes a $550m charged incurred in the second quarter to pay Alistair Darling's bonus tax.

When Darling was chancellor he slapped a one-off tax on bonuses which raised £2bn. His successor George Osborne has not repeated the tax.

The compensation expense as a percentage of total net revenue in the investment bank was 36%, slightly lower than the 38% recorded in the first half of 2009. The ratio is also lower than the 43% the bank reported for 2006, before the credit crunch sparked a debate about the amount of revenue banks use to pay their bankers through salaries and annual bonuses.

When the bank's entire operations are included, such as retail banking, commercial banking and asset management, the total bill to pay staff in the first six months of 2010 is up 3% on the same period in 2009 at $14.8bn.

Reporting its results for the second quarter, JP Morgan said its net income for the three months to end of June had jumped to $4.8bn from $2.7bn the same time a year ago, although admitted that this was not a true picture of how the bank had traded during the three months.

Jamie Dimon, chairman and chief executive, said: "Our net income increased to $4.8bn, including the benefit from a $1.5bn reduction of loan loss reserves – which we do not believe represents normal ongoing earnings – partially offset by a charge of $550m for the UK bonus tax."

He described the performance of the consumer-lending business as "unacceptable" because of high levels of charge-offs and delinquencies on loans. "As a result, these businesses did not meet expectations nor generate satisfactory returns on capital for our shareholders. It is too early to say how much improvement we will see from here. We saw solid performance in our other businesses," Dimon said.

Banker performance related pay you can't beat it. No matter what the performance you get a bonus.

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No, really?

JPMorgan reported a better than expected second-quarter profit earlier Thursday, but Bove said the figure was not good because it was partly boosted by the fact that it took money out of its reserves to put into earnings.

"What you're going to see is that just about any bank that reports numbers… is going to do the same thing," he said. "That's something that banks have always done in recoveries."

Except that it's not a "recovery" when the entire move was driven by The Federal Government borrowing eleven percent of GDP and spending it to replace final demand.

Listen to Alistair Darling:

His point (which I heard as I was drinking my morning coffee) is both misguided and spot-on.

Huh? - you might ask...

Yes. His point is that government "borrow and spend" has replaced final demand - and he asks where is final demand going to come from if (not when?) that government spending is removed?

This is the problem with the faux Keynes adherents. They're false adherents, incidentally, because the Keynes' theories require that during boom times the Treasury must raise taxes, cut spending, and bank a surplus.

This never happens, of course, and as such the supposed "balance" is never maintained.

As a consequence all attempts to apply Keynes' theories to the economy in the real world wind up being a Ponzi Scheme. The government applies a "stimulus" during bad times and then finds itself unable to withdraw that stimulus during good times, having embedded a structural deficit.

This in turn sends a false demand signal to the economy, which responds by filling the falsely-indicated demand. When the inevitable recognition of overcapacity occurs, you get another, deeper recession. Government in turn responds by doing the same thing it did the last time, building an even DEEPER structural deficit into the economy.

Eventually you run out of suckers, er, Ponzi Participants when the credit wall is hit in the broad economy. Government, being the foundation on which private credit is computed (that is, it's the allegedly risk-free return) typically can continue this cycle once or twice.

But the premise of those who argue that government can expand its borrowing forever, and thus continue its "stimulative" policy forever, is incorrect. While it is true that a government can emit its own currency in some fashion to any degree it wishes, it cannot do so without consequence.

Provided money is issued against debt (as is the case in all modern economies where Treasuries sell bonds to finance themselves, even if those sales are made to their central banks) the ultimate unintended consequence is that borrowing costs skyrocket and political pressure becomes intolerable for the central bank to monetize. But the monetization of debt destroys the lenders of capital, including the Central Bank's patrons/owners - the very banks that it serves the clearing function for! They will thus resist or refuse outright, and that in turn ultimately sets up the "Battle Royale" when the legislature and/or executive is forced to decide between living within tax revenues and dissolving said bank or emitting unbacked currency.

The latter, if chosen, has always led to the destruction of the currency emitted. This path is either abandoned quickly (e.g. Lincoln's Greenbacks) or it results in a hyperinflationary destruction of the currency (and usually political system) - aka Weimar Germany or Zimbabwe.

The former brings the "avoided" deflation (which isn't really deflation at all - rather, it is the unwinding of the naked short on the currency that unbridled and unsound credit creation represented) on the economy more-or-less "all at once."

FDR thought he could "avoid" the damage by "revaluation" (possible only in a specie-backed monetary world.) He was wrong; the Depression was not exited until the excess productive capacity worldwide was destroyed by war.

On the other side Harding, in 1920 was counseled by Hoover (who at the time was Secretary of Commerce) to do exactly as FDR did and both Bush and Obama (plus Bernanke) have done this time around: spend like crazy, protect the banks from their own foibles and borrow whatever was necessary to do so. Unemployment had risen to 12% by 1920 and GDP slumped 17% - a nasty depression. He refused and the Depression of 1920 was over by the end of 1921, with all the bad credit being cleared out of the system the capitalist way - those who had made and taken bad loans went bust!

By 1923 unemployment had fallen to 2.4% - a level that, other than in wartime, we have never seen since.

You're not going to see this happen in the 201x years because our government continues to allow the games to be played. The banks are still holding and hiding their bad debt, they have been protected from failure, spending has skyrocketed and now we're headed for the wall - the decision between forced austerity and destruction of both the currency and our political system.

There is still time to force the banks (and others) to do the right thing, but not to avoid the pain. We are now arguing only over whether that pain will occur voluntarily or via the cold, hard hand of the market - the famous "invisible hand" that listens to nobody and, while sometimes evaded temporarily, is never truly avoided.

Denniger's take on the JP numbers.

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Something is rotten in the state of Rochdale. One of the most bullish banking analysts ever, Dick Bove, just crucified not only JP Morgan's earnings report, but also said Jamie Dimon "missed it completely on housing", and lastly, has turned extremely bearish on the overall economy, saying there is a 40-60% chance for a double dip, which at last check is probably more bearish than David Rosenberg. Bove throws up all over JPM "good" results, stating it is all a function of loan loss reductions, which the bank is in no way entitled to take at this point, when there is so much negative macro data piling up. As NPLs are likely to continue deteriorating in the future, should the economy weaken further, JPM would have to not only replenish existing accounting gimmicks such as boosting Net Income via balance sheet trickery, but to put even more cash to preserve a viable capitalization ratio. As Bove is the quintessential contrarian indicator, we are preparing for a month long sabbatical to a Buddhist monastery in Tibet to thoroughly reevaluate our perspectives on the universe.

The Zerohedge view.

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Borrow at 0.5% rates and lend at 5%+.

A monkey could make a profit at those rates.

Those pay cuts and freezes are for you and not the affluent.

The austerity measures are also for you, as the wealthy can always afford private services.

...oh and those tax rises which are coming - they're for you too.

If you hadn't brought the world Economy to it's knees then you wouldn't have to pay for it.....

What's that ? It was the banks, run by the same wealthy who are not paying for any of it and also taking a hefty trousering of the money - and not you????

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That's the problem with these banks, if they drop these bonuses, their brightest just leave for greener pastures (e.g. Goldman Sachs, UBS). The problem lies within our capitalism world where greed and money drives everything.

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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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