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Jpmorgan Sets Bullish Tone For Bank Earnings

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JPMorgan Chase & Co (JPM.N) reported a greater-than-expected 47 percent increase in quarterly earnings and struck an upbeat tone that lifted the shares of major U.S. banks reporting next week.

JPMorgan executives said loan demand and trading profit could grow this year, boosting investor optimism that revenue for major banks will recover.

The bank's shares rose 2.6 percent to $45.59 (28.71 pounds), their highest since April, and they were the biggest percentage gainer on the Dow Jones industrial average .DJI at midday.

Profit and revenue were stronger than analysts had expected, even though the bank boosted earnings by 30 cents a share by releasing $2 billion of reserves previously set aside to cover credit card losses.

Wall Street broadly interpreted the results as indicating underlying strength, but some critics questioned whether the release of reserves distracted investors from the still-difficult economic circumstances weighing on the bank's main consumer business.

JPMorgan is also still wrestling with the aftermath of the mortgage crisis and put aside another $1.5 billion to cover legal settlements mainly linked to U.S. home loan foreclosures.

Chief Executive Jamie Dimon set a positive tone on a call with analysts. JPMorgan could start to increase its dividend, which the bank trimmed to an annual 20 cents during the crisis, to about 75 cents to $1 a year once regulators give the go-ahead, likely at the end of March, he said.


JPMorgan, the second-largest U.S. bank by assets, made loans totalling $2.4 billion in the fourth quarter, an increase of 0.35 percent. Economists are scrutinizing banks' loan books for indications of growth, which would suggest broader economic improvement. Like other banks, JPMorgan said throughout last year that it was seeing patchy pick-up in loan demand, mainly from middle-market and small businesses.

So the economy improving or the banks are using Enron style accounting to boost earnings by booking profits for income not yet received. There have been a couple of posts on HPC about the banks doing this.

Still be positive it's the recovery.

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The headline says....

Fourth-quarter net income climbed to $4.83 billion, or $1.12 a share, from $3.28 billion, or 74 cents, in the same period a year earlier and from $4.42 billion, or $1.01 a share in the third quarter, the New York-based company said today in a statement. The results compared with an average per-share estimate for adjusted earnings of $1 projected by 25 analysts surveyed by Bloomberg.

32 cents of it, however, was a reduction in loss reserves (that is, not actually money, but rather accounting tricks.)

That compares "favorably" with the 40% of "earnings" that came the first nine months from reducing reserves.

But are these reductions warranted?

I'm not sold.

The problem with the "Fraud As a Standard Board" (FASB) is that they folded like a cheap suit when accosted by Congress in 2009 instead of doing their job and telling Kanjorski-the-clown and the rest to stick it, forcing them to impose their intended fraud by legislation where everyone could see it front-and-center. Nothing has materially changed since then, which means we don't have actual results - any more than we did before. And there are new allegations, as I reported on Wednesday, that banks are playing "funny money" games with alleged "earnings" on imputed interest (and probably fees) on non-performing mortgages.

The thing is, accounting standards say that you can't do that - oh sure, you can "recognize" the alleged "earnings" but you also have to reserve against it, categorize the likelihood and size of the loss, and report that too.

But if you remember in 2007, nobody did. In fact that was what set off my alarms in early 2007 when I caught WaMu paying dividends out of non-existent money - and from my analysis those funds had a collection likelihood that was doubtful at best, yet the bank had taken no reserve against that alleged "profit."

It of course turned into "not a prayer in hell" in terms of collection likelihood and ultimately was to a material degree the cause of the detonation in those financial institutions.

Yesterday, Tim Geithner prospectively stated his intent to violate Dodd-Frank - black-letter law - when he stated that if there was another crisis he'd bail out banks again. This, despite Dodd-Frank requiring him to prospectively break up any institution that poses systemic risk in this fashion, before the crisis occurs.

The problem with attempting to do so again is not only that Congress will be very unlikely to go along with it. It's also the fact that irrespective of what Congress thinks and wants to do there is insufficient firepower available to do so without skyrocketing the commodity markets as a consequence of currency debasement which will instantly destroy any allegedly-salutary benefit that would otherwise be present.

So Denniger feels it's an accounting trick.

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