Monday, 18 October 2010 14:30

JP Morgan's Analysts Agree with BoomBustBlog Research on the State of JPM (a Year Too Late) but Contradict CEO Jamie Dimon's Conference Call Statements

As I sit in the car, surrounded by thick NYC traffic, on my way to the highly anticipated CNBC interview (the Squawk on the Street show) on JP Morgan, banks, real estate and related issues, guess what I happen to drive by... MORE construction - causing me to ponder what additional damage  will be done to banks that backed these deals. Then, less than an hour later I read from CNBC and Bloomberg that JP Morgan's analysts predict that forced repurchases of soured U.S. mortgages may be the “biggest issue facing banks”. Bloomberg goes on to state:

Future losses from repurchases of home loans whose quality failed to meet sellers’ promises will likely total $55 billion to $120 billion, or potentially $10 billion to $25 billion for the next five years, the New York-based mortgage-bond analysts led by John Sim and Ed Reardon wrote in a Oct. 15 report.

I immediately blurt out, "Now hold the hell on a minuted!!!" That report of the 15th sounds an awful lot like the article I published on the 12th, “” (Hey, no peeking, no copying, fellas!) which, among many other things, reiterated what I said in the 4th quarter of LAST YEAR!!!.

To be fair, the JP Morgan report is very similar to mine in content, scope and gist - JUST A YEAR OR SO TOO LATE! I quote (again) "Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results":

Warranties of representation, and forced repurchase of loans

JP Morgan has increased its reserves with regards to repurchase of sold securities but the information surround these actions are very limited as the company does not separately report the repurchase reserves created to meet contingencies. However, the Company’s income from mortgage servicing was severely impacted by increase in repurchase reserves. Mortgage production revenue was negative $192 million against negative $70 million in 3Q09 and positive $62 million in 4Q08.

Counterparties who are accruing losses from bad loans, (ex. monoline insurers such as Ambac and MBIA, see A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton circa November 2007,) are stepping up their aggression in pushing loans that appear to breach certain warranties or smack of fraud. I expect this activity to pick up significantly, and those banks that made significant use of brokers and third parties to place mortgages will be at material risk – much more so than the primarily direct writers. I’ll give you two guesses at which two banks are suspect. If you need a hint, take a look at who is increasing reserves for repurchases! JP Morgan and their not so profitable acquisition, WaMu!

It is not like I think I'm better than these guys (okay, I might be lying just a wee bit - Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?), but if you really felt the way you expressed yourselves in the Bloomberg article, why didn't you say something last year when I brought the topic up, or the THREE WHOLE quarters since then??? Here's an even better question that should make this entire article go viral around the web...

If you really felt "Forced repurchases of soured U.S. mortgages may be the “biggest issue facing banks”" (which I certainly agree with) then why didn't you bother to tell your own damn CEO during his conference call????

Reference "JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!!"

Jamie Dimon (Q3 2010 conference call)

You know our society, right? You know how many lawsuits go on, and class action suits, and stock drop suits, and [unintelligible] suits and WaMu suits and Morgan suits and it ain’t going away. It’s becoming a cost of doing business.

In repurchase reserves and litigation, it’s unclear exactly how or where it’s going to show up, but we do think there will be some of that.

Jim Mitchell

Right, but you’re already contemplating some of those issues in your current reserving?

Jamie Dimon

To the extent we can, you know? Reserves are – you can’t guess and put up numbers, but to the extent we can. I think the question is, between the reserves we have is how long losses relating to repurchase, whether it’s GSE or private label, and whether it shows up on the litigation or repurchase, how long they go on for. We don’t expect it to be a blowup kind of number [Ya' know, like $120 billion or so!!!]. We expect it will be they’ll just drag out these losses as these things play themselves out. [Definitely nuthin' like "biggest issue facing banks"]

Nancy Bush – NAB Research

Two questions. The first related to the foreclosure issues, and whether there are going to be any extraordinary expenses associated with that. And is the level of expense in that whole activity now going to be higher going forward?

Jamie Dimon

I think I already mentioned that the way I look at it we’re bearing $5 billion of charge-offs a year, $1 billion in repurchase reserves a year [out of a potential pool of $120 billion], a lot of re-owned foreclosure, which I forget off hand, but it’s big numbers. Those numbers may bounce up and down and probably will go up a little bit because of this, but I’m not sure they’re going to materially change because of this. And there will be litigation, I put to the side, I don’t know how it’s all going to be sorted out.

… I think the way you should look at this topic is that we’re bearing today $7 billion of charge-offs, foreclosure, repurchase costs – this affects reserves. That $7 billion will go up or down based upon the economy and stuff like this. I’m not sure stuff like this is going to dramatically change that number. It may extend it a little bit longer and stuff like that but – and remember we have in total, between repurchase reserves and the $11 billion, we have $14 billion of reserves for repurchases or loan losses.

There would have been some shit if I read this story in its entirety BEFORE my CNBC interview instead of after. And to think, some people actually ask me why I'm short JPM. If you want to see more of me on CNBC, click here and tell them. Be sure to explain why.

Everyone should be able to see there is something fundamentally wrong with the mortgage landscape (still) in many parts of the US. The punch line in the video below, “But how do all of these people [developers] get all of this money to put up all of these [empty] buildings? [as they are still building new buildings around the empty buildings that they cannot sell or rent!]“  I reply, “Those people over there! The banks!” As I point to the local JP Morgan Chase branch in downtown Brooklyn.

[youtube WsTdV86nAGw]

For all of you CRE bulls, that clip is the same area photo-toured more than one year ago – tell me if the situation has changed in accordance with the 100%+ spike in REIT and bank share prices – “Who are ya gonna believe, the pundits or your lying eyes?”. Download my free research on the topic – CRE 2010 Overview CRE 2010 Overview 2009-12-15 02:39:04 2.72 Mb. Tuesday, December 15th, 2009, then subscribe to get the juicy stuff.

The clip above is from the October 4, 2010 VPRO Backlight (Dutch public television) featuring the issues facing JP Morgan, as well as the European banking sector. This special was very well done and I look forward to the US public television stations doing similar investigative work. See the entire video (43 minutes) on the VPRO site (in Italian, Dutch and some English with Dutch Subtitles).

Required JP Morgan reading...

JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!!"

Reggie Middleton CNBC interview (the Squawk on the Street show)

Banks Will Be Forced to Forgo Certain Foreclosures, Even If the Borrower Has Admittedly Defaulted!

The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!

I will be releasing an updated JPM forensic valuation in about 24 hours for subscribers. In the meantime, current subscribers should review our forensic valuation reports, which have (thus far) proven to be right on the money in terms of JP Morgan:

The JP Morgan Professional Level Forensic Report (subscription only)

The JP Morgan Retail Level Forensic Report (subscription only)

Those that don’t subscribe still have a lot of BoomBustBlog JPM opinion and analysis to chew on, including a free, condensed (but still about 15 pages) version of the forensic analysis above. You can find it below this pretty graphic from “An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…

An Independent Look into JP Morgan (subscription content free preview!)

More Reggie Middleton on JP Morgan

The full JPM Q2 review can be downloaded by subscribers (click here to subscribe) here: File Icon JPM 2Q10 review

  1. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 – JP Morgan
  2. Is JP Morgan Taking Realistic Marks On Its WaMu Portfolio Purchase? Doubtful!
  3. Anecdotal observations from the JP Morgan Q2-09 conference call
  4. Reggie Middleton on JP Morgan’s Q309 results
  5. Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results
Last modified on Monday, 18 October 2010 14:46
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