EmailJPMorgan Chase (JPM $34.64 +0.60) reported second quarter earnings of $1.21 per share, may not be comparable to the Capital IQ Consensus of $0.75, while revenues fell 16.5% year/year to $22.89 billion versus the $21.7 billion consensus.
One Time Items: $4.4 billion pretax loss ($0.69 per share after-tax reduction in earnings) from CIO trading losses and $1.0 billion pretax benefit ($0.16 per share after-tax increase in earnings) from securities gains in CIO's investment securities portfolio in Corporate; $2.1 billion pretax benefit ($0.33 per share after-tax increase in earnings) from reduced loan loss reserves, mostly mortgage and credit card $0.8 billion pretax gain ($0.12 per share after-tax increase in earnings) from debit valuation adjustments ("DVA") in the Investment Bank $0.5 billion pretax gain ($0.09 per share after-tax increase in earnings) reflecting expected full recovery on a Bear Stearns-related first-loss note in Corporate.
Basel I Tier 1 common of $130 billion, or 10.3% Estimated Basel III Tier 1 common of 7.9%, after the impact of final Basel 2.5 rules and the Federal Reserve's recent Notice of Proposed Rulemaking Strong loan loss reserves of $24 billion; Global Liquidity Reserve of $414 billion. The Firm's return on tangible common equity for the second quarter of 2012 was 15%, compared with 17% in the prior year.
Jamie Dimon, Chairman and Chief Executive Officer, commented on financial results: "Importantly, all of our client-driven businesses had solid performance. However, there were several significant items that affected the quarter's results - some positively; some negatively. These included $4.4 billion of losses on CIO's synthetic credit portfolio, $1.0 billion of securities gains in CIO and a $545 million gain on a Bear Stearns-related first-loss note, for which the Firm now expects full recovery. The Firm's results also included $755 million of DVA gains, reflecting adjustments for the widening of the Firm's credit spreads which, as we have consistently said, do not reflect the underlying operations of the Firm.
The Firm also reduced loan loss reserves by $2.1 billion, mostly for the mortgage and credit card portfolios. These reductions in reserves are based on the same methodologies we have used in the past - the good news is that these reductions reflected meaningful improvements in delinquencies and estimated losses in these portfolios. We continue to maintain strong reserves." Dimon continued:
"Since the end of the first quarter, we have significantly reduced the total synthetic credit risk in CIO - whether measured by notional amounts, stress testing or other statistical methods. The reduction in risk has brought the portfolio to a scale that allowed us to transfer substantially all remaining synthetic credit positions to the Investment Bank. The Investment Bank has the expertise, capacity, trading platforms and market franchise to effectively manage these positions and maximize economic value going forward. As a result of the transfer, the Investment Bank's Value-at-Risk and Risk Weighted Assets will increase, but we believe they will come down over time. Importantly, we have put most of this problem behind us and we can now focus our full energy on what we do best - serving our clients and communities around the world."
Commenting further on CIO, Dimon said: "CIO will no longer trade a synthetic credit portfolio and will focus on its core mandate of conservatively investing excess deposits to earn a fair return. CIO's $323 billion available-for-sale portfolio had $7.9 billion of net unrealized gains at the end of the quarter. This portfolio has an average rating of AA+, has a current yield of approximately 2.6%, and is positioned to help to protect the Firm against rapidly rising interest rates. In addition to CIO, we have $175 billion in cash and deposits, primarily invested at central banks."
