INTRODUCTION

As per the Q3 2020 earnings release by JPMorgan, it has exceeded Wall Street's Revenue and Profit forecasts by recording substantial gains in its Corporate and Investment Banking division. Also, the quarter’s main performance was largely driven by the equity capital markets business, which saw an uptick in IPO issuance driven by a strong equity backdrop with stocks trading at or near all-time highs. The Bank has earned USD 9.4 billion of Net Income during the 3^rd quarter. During the period, the Bank has released USD 600 million reserves, primarily on runoff and home lending and changes in wholesale loan exposure. The Bank's traders handily exceeded expectations, and recorded market revenues of USD 6.6 billion boosted especially by strong fixed-income trading.

JPMorgan has also set aside less reserve provisions, compared to the first two quarters of the year. Revenues generated from capital markets and investment banking has also helped offset the decline in its consumer business. The bank, however, has set aside USD 611 million for loans that may go bad, less than the USD 10.5 billion it had put aside against future losses in the previous quarter.

Performance in the Trading division was the bright spot in the quarter even as the pandemic has highly affected in the US economy with thousands of businesses shutting down and the unemployment rate soaring. The economic fallout of the pandemic has triggered one of the worst recessions in decades.

Jennifer Piepszak, Chief Financial Officer (CFO) of JPMorgan in its earning release, said: "We don’t expect any meaningful increases in charge offs until the second half of 2021. However, the medium to longer-term is still highly uncertain in particular as it relates to future stimulus. And so, we remain heavily weighted to our downside scenarios, and with reserves of 33.8 billion, we’re prepared for something worse than the base case. We’re not reserved for the extreme adverse scenario. We are reserved for something worse than the base case because we have put heavy weights on scenarios that are worse than the base case, but we are not reserved for the extreme adverse scenario”.

However, if we delve in, we see a different picture of the JPMorgan's financial status. With the outbreak of the COVID-19+ pandemic, the global economy has experienced the worst financial crisis ever, worse than the 2008 financial crisis, with a rise in unemployment levels. The pandemic has largely affected industries such as aviation, travel & tourism, commercial real estate sectors, automobiles, construction, and retails. The pandemic has jolted down the financial markets with a sharp decline in bond yields, oil and equity prices. Institutions and individuals have experienced liquidity stress, including limited access to credit that has increased the default rates, especially for near-term or in the speculative-grade of corporate debt. Private debt, including corporate and household debt, has reached record levels, and approximately one-half of the investment-grade market held a triple-B rating.

With such humongous losses in the financial markets and defaults in repayment of loans with rising unemployment, it is quite hard to believe the result of the JPMorgan's 3^rd quarter earnings release.

Let us get an insight into the results.

JPMorgan 30+ Days Loan Delinquency Rate 

JPMorgan in its 3Q 2020 results has reported a 30+ day delinquency rates of 1.62%, 1.57% and 0.54% for home lending, card and auto loans, respectively. The delinquency rates of loans have not changed much throughout the last five quarters. The loan delinquency rates for the 3^rd quarter for home lending is higher than the delinquency rates of loans in the 1^st quarter of 2020 and for the card and auto it is very low when compared to the 1^st quarter of 2020.

During the 1^st quarter, the Bank reported 30+ day delinquency rates of 1.48%, 1.96% and 0.89% for home lending, card and auto loans, respectively. This was quite hard to believe.

By digging further, we found that the Bank has created COVID-19 relief programs giving moratorium relief to its consumers. At the end of 3^rd quarter, the principal balance of loans in home lending, card and auto underpayment deferral programs offered in response to the COVID-19 pandemic, still within their deferral period, were USD 10.2 billion, USD 368 million and USD 411 million, respectively. Loans that are performing according to their modified terms are not considered as a delinquent by the Bank.

We have restructured the 30+ day delinquency rate by adding back the humongous amount of loan relief provided by JPMorgan. The 30+ day delinquency rates estimated by Veritaseum have a considerable difference from what is presented in JPMorgan's report. The 30+ day delinquency rate is 6.93%, 3.99% and 1.22% for home lending, credit loans and auto loans compared to 1.62%, 1.57% and 0.54%, respectively as reported in JPMorgan's earnings report.

JPMorgan's 30+ and 90+ day delinquent loan amount for the 3^rd quarter 2020 was reported at USD 13.31 billion, USD 5.6 billion and USD 0.7 billion for home lending, card and auto loans, respectively. However, the reserve for allowance for loan losses is made on the recorded numbers instead of the actual numbers. Allowance for credit losses for hardest hit sectors is very minimal, i.e., home lending (USD 2.7 billion) and auto loans (USD 1.0 billion).

Profit Provisioned for Credit Losses

JPMorgan reserved 5% of its pre-provision profit for provision for credit losses. The Bank has maintained a higher provision for credit losses of 13% out of its profit before provision for Consumer and Community Banking. For Commercial Banking, Corporate and Investment banking, and Asset and Wealth management it doesn’t maintain a provision for credit losses.

Return-on-Equity (ROE)

Return-on-Equity shows the financial performance of a Bank. Assets, Profits, Equity, and fundamental ratios help to analyse how banks are performing, and by looking at the graph it says it all, it shows the performance that how they are performing during the COVID-19+ phase. JPMorgan's ROE has increased drastically and has appeared to be 29% in 3^rd quarter of 2020 whereas it is negative in the 2^nd quarter of 2020. This depicts that the Bank has outperformed in the Q3 2020, which is quite hard to believe looking at such an uncertain environment/market prevailing right now.

Balance Sheet Interest Rate Analysis

The interest rate on JP Morgan's every asset in 3^rd quarter 2020 is trending significantly downwards which means either the Bank is earning less interest or has to engage considerably more risk in an attempt to make the same amount of earning on its deployed assets; which is contradictory to ROE which has increased drastically to 29% in Q3 2020 from -2% in Q2 2020.

Net Income

JP Morgan's Net Income on every segment except for the Corporate & Investment banking (Trading sector) has declined in the 3^rd quarter of 2020 compared to Q2 2020. The trading sector recorded a profit of USD 4.3 billion in the third quarter.

Net Interest Margin

JPMorgan's Net Interest margin and interest rate spread has declined during Q3 2020 and reached 1.82% and 1.75%, respectively, from 2.37% and 2.17% recorded in Q1 2020. It is depicting lower Profit earnings in the 3^rd quarter of 2020 and is expected to reflect even less in the next quarter.

Figure8: Net Interest Margins(in USD millions)

Conclusion

JPMorgan Chase earned USD 9.4 billion of Net Income on nearly USD 30 billion of Revenues, and maintained credit reserves at ~USD 34 billion given significant economic uncertainty and a broad range of potential outcomes. Even the Trading division gains are significantly risky, unsustainable and volatile, while Corporate and Investment bank results came in better than JPMorgan's estimates. During Q3 2020, Net Interest Margins and Interest Rate spreads have declined to 1.82% and 1.75%, respectively, owing to the Fed's decision to no change in interest rates. On the other hand, while the Bank has reported 30+ day loan delinquency rate of 1.62%, 1.57% and 0.54% for home lending, card and auto loans, respectively, the adjusted rates seem to be way higher at 6.93%, 3.99% and 1.22% if we consider the amounts set under-payment deferral programs offered in response to the COVID-19 pandemic. Moreover, the fate of the industry is closely tied to the pandemic because unemployment and business disruptions caused by the virus impacts the abilities of customers and companies to repay debts. Also, JPMorgan shares have dropped 27% this year, which is the biggest gap in performance versus the S&P 500 Index in at least 80 years. However, the point to keep in mind is that JPMorgan, which along with the rest of the industry is banned from repurchasing stock through 2020, could repurchase shares as early as the first quarter of 2021.

We think the stock's performance may hinge on management's view on the pace of the recovery and the path to normalized ROE. These trends may have a larger impact on JPMorgan's stock and financial performance in the coming quarters.

On October 24, 2022, Coinbase Prime announced entering into a partnership with MakerDao to become a custodian of USD1.6 billion worth of USDC, of which MakerDao is the largest holder. In return, MakerDao will earn a 1.5% reward on its USDC holdings while holding funds with a “trustworthy” institutional custodian. Through this deal, Coinbase regained control of the tokens held by its investors and utilized the tokens for re-lending

Analysis

Contrary to popular belief, Coinbase is a crypto asset broker/dealer, not an actual exchange. This misunderstanding is not through duplicitous actions of Coinbase, though. The term “cryptocurrency exchange” was most likely originally used by a software developer/tech enthusiast who did not understand the actual meaning of the parlance, and its usage has simply stuck over time.

Broker/Dealer: A broker is an individual or financial services company that enables the trading of assets for other individuals. A dealer is an individual or financial services company that enables the trading of assets for themselves. Coinbase does both of these:

3.21 Coinbase, Inc., which owns and operates Coinbase Pro and Exchange, also trades its own corporate funds on Coinbase Pro and Exchange – Coinbase help site.

Exchange: Exchanges and brokerages are different types of markets with unique functionality. Exchanges match traders, allowing them to execute orders with each other. Brokerages transact with their clients directly.

See  pdf Coinbase/MakerDao USDC Rehypothecation Analysis (1.45 MB) for the full report.

In light of the current events surrounding FTX, Voyager, 2 Arrows Capital, Celsius and BlockFi (among many other centralised trading entities), trust in the crypto market has been deeply affected, and based on our initial understanding of the following factors, the coins BNB and BUSD are considered risky, and the credit quality of Binance cannot be confidently ascertained:

• It should be noted that the top 10 holders for both coins account for more than 94% of the holding, which suggests that the demand for the coin is low. Notably, of the top 10 biggest holders, Binance holds 97.5% and 93.5% of BNB and BUSB, respectively; This reflects huge concentration risk. Again, Binance mints both of these coins, similarly to FTX and the FTT token.
• Of USD69.3 billion of the coins held by Binance in total (as far as we were able to ascertain from public sources), coins that they actually mint themselves account for 54.7% (USD37.9 billion), i.e., BNB and BUSD. And considering the concentration risk combined with the fact that they are the world’s largest crypto exchange, they can effectively control the price and hence the (mark-to-market) value
• Analyzing the recent few transfers made for BNB, astonishingly, Binance made 99.96% of the purchase on significant volume. One more time – the entity that:
  • mints the BNB,
  • controls the largest share of the global crypto trading market,
  • and holds ~98% of the minted BNB (with no backing other than the promise of discounted trading fees on their platform),

likely carries these tokens as assets on its balance sheet to be used as collateral for loans and hypothecation. Think about it! And you thought FTX was bad???

Download our free report to finish reading.  pdf Binance Cursory Forensic Analysis Considering the FTX Collapse…. Uh Oh! (1.77 MB)

I'm talking to award winning (i.e., Sundance) Director(s) about what is apparently a captivating story about one man's underdog struggle in finance, technology and crypto against entrenched special interests, both public and private.

In the mean time, please enjoy this feature article from Executive Global.

The Coinbase Global Forensic Analysis is available for free download. Extremely comprehensive at 114 pages, and written in plain English. There are things here that even the company's CEO likely does not know.

Download the  pdf Coinbase Forensic Analysis (5.32 MB)

We have recently produced an addendum our updated views on Coinbase's profitability. We expect both operating and net income losses, as well as the potential for material patent infringement liability. Reference  pdf Coinbase Analysis Addendum July 2022 (350 KB)

TL;DR You can skip past all of this and just Download the full Circle report here-  pdf Circle's USDC Stablecoin Analysis (1.12 MB) .

Bloomberg reports in its Technology section, ‘Terra $45 Billion Face Plant Creates Crowd of Crypto Losers’ and “ ‘Everything Broke’: Terra Goes From DeFi Darling to Death Spiral” wherein they detail the failure of what they (as an old school concern) say are shortcomings in crypto and DeFi. Terra’s problem was very, very simple, yet many either ignore it or fail to understand it. They based their entire system on a methodology that has not proven to work over time, since inception – at least not yet. That methodology is stabilizing digital assets in a “centralized” decentralized market (ex. fractured pricing and liquidity) around a traditional asset that does not exist natively on the blockchain. A shorter way of saying that is algorithmic stablecoin. To my knowledge, and I may be wrong here, every stablecoin that has had significant volume has broken the buck under pressure. Now, physically backed stablecoins have broken the buck as well, but you always have good ole fashion human greed manifested through arbitrage to save the day there. This greed factor works in the opposite direction when it comes to algo coins. This is not a secret hence no one should have been surprised about what happened over there at Terra Labs.

My name is Reggie Middleton, and I’m the storied, founder and patented (US11196566 and JP6813477) creator of DeFi.

I’m here to truly educate you…

Bloomberg also reported in its “Finance” section: “The Crisis at Celsius Is Rocking DeFi and Crypto”. I mention the sections because nuance is actually very important here. Crypto, and more to the point, DeFi, is nearly purely technology and IP driven. It is not finance, it is technology – a technology that can be used to dramatically improve finance, but technology, nonetheless. Those that fail to understand this are quite likely toing to get their $sses handed to them over time. Further to the title of the article, this has nothing to with DeFi. It is CeFi (centralized finance, yes – that traditional stuff) which is rocked by this scandal, and it is CeFi which funds, operates and is most effected by the profligate consumption of risk over reward that is common between all three of the aforementioned articles, the extant and current news cycle and unfortunately, this report as well.

The media is not anxious to report the truth and facts, for if it was you would have heard of me a long time ago. The negative and unproven allegations against me actually do catch wind in the media, but the proven and positive accomplishments haven’t been covered since 2014, write about the time I invented DeFi - which is also quite unfortunate, Draw from that what you may. I digress, thus back to the topic at hand and the tenor of the Bloomberg articles…

Reference the latest funding rounding Circle Internet Financial – a prominent crypto company that issues the number two stablecoin in the industry, above that of the recently demised UST from Terra labs They are similar in operations to Celsius, BlockFi, Genesis Trading, etc. in that they use the products of DeFi technology to conduct CeFi and TradFi (traditional finance) business. What’s wrong with that? Well, imagine tacking a high-powered Tesla Plaid motor onto a horseshoe, then writing articles about the shortcomings of electric care technology when the horse breaks its leg! Yep!

Now, note that DeFi protocols, which are purely (or at least, they’re supposed to be) smart contract driven, are humming along just fine.

This goes to show that the media, the management and above all, the regulators, still have no clue as to what this space is about.

It is about technology and IP, just like the internet in 1995. No one should be trying to make IP packets securities and tradeable, speculative SEC-bait, and doing so now will not work any better than doing so then.

Download the full Circle report - pdf Circle's USDC Stablecoin Analysis (1.12 MB) .

Note, this report was researched and completed in around 24 hours. If you think it is hard hitting, wait until you see our upcoming Coinbase report. Brrrr....

Here are some timely tidbits for those who simply can't wait to read good stuff!

As pdf  per Veritaseum’s earlier report prediction (1.68 MB)  that the margins would decrease and the Company would incur losses, the Company incurred a loss of USD114 million even after excluding all supposedly non-recurring the above items. Cli.ck  pdf here for the original (1.68 MB) , full forensic analysis, and click here for  pdf Block Financial Highlights Q1 2022 Analysis (597 KB) .

This is out inaugural public company crypto analysis. Many do not realize that Block, Inc, formerly Square, is a full fledged crypto company with 57% of its 2021 revenues coming from Bitcoin. Its bitcoin contribution to revenues is rapidly increasing, and is likely to be around 70% within a quarter or two barring a dramatic correction. You can download the report here:   pdf Block, Inc, Forensic Analysis, w/ Patent & IP Deep Dive (1.68 MB)

Here are some snippets that I think you will find of interest. 

The patent “Devices, Systems and Methods for Low Trust and Zero Trust Transfers”, was recently issued by the USPTO (patent number US11196566 in the world’s largest economy) and the JPO (patent number JP6813477B2 in the (world’s 3^rd largest economy).

Reggie Middleton was first in enabling the conditional transfer of value over any arbitrary distance using nearly any network connected computing device, without a middleman or authoritative 3^rd party, and without the need to trust your transaction party. Further, due to this invention, counterparty risk and credit risk has been either eliminated or minimized via use of the immutable attributes of blockchain and DLT technology.

These patents represent foundational technology in the realm of value transfer through a distributed ledger. Mr. Middleton and his team look forward to using these technologies to expedite the entrance of the age of Peer-to-Peer Capital markets where anyone can trade nearly anything in any amount directly with anyone else, anywhere, without middlemen and rent seekers.

The aboriginal name of this invention was “Peer-to-Peer Capital Markets”, but it is better known today by the moniker of its most popular subset, “DeFi” – or “decentralized finance”, which was discovered in 2013 by Reggie Middleton, the primary inventor.

In the globally leading economies, where patents have been attained, as well as those entities that operate using the invention with and through them, it is Mr. Middleton’s opinion that patent protection now exists over:

• devices used to transfer conditional value through distributed ledgers, i.e., blockchains (such as certain uses of the ubiquitous virtual machine, or VM)
• systems used to transfer conditional value through distributed ledgers, i.e., sidechain implementations to platforms such as Bitcoin and similar scaling improvements to Ethereum (which the invention predates) and other blockchains; and
• methods used to transfer conditional value through distributed ledgers, such as certain implementations of On-Demand Liquidity (ODL), swaps and lending facilities, certain asset-backed and stable tokens, letters of credit and DLT insurance schemes.

Reggie Middleton, the inventor and founder of the technology in question, states, “It has been a long road since 2013 - fraught with accusations of fraud regarding the validity of our IP, regulatory ambiguity, rampant discrimination and extremely inequitable treatment of the Veritaseum project and its principal(s). We ran into new versions of an old paradigm - the old boy’s network, as well as lacking equitable access to capital and distribution. None of this prevented the inevitable - the next evolutionary step in commerce and business – the development of the foundational technology known as P2P Capital markets and DeFi. I am uber-excited! We’re pulling off an American success story, despite the odds!”

“How did we get this far? Embracing – versus fearing – a massively disruptive, value creating, progressively disintermediating vision combined with good old hard work, perseverance and integrity. Looking back at our marketing documents from 8 and 9 years ago, we are delivering on our promises, despite the odds and immensely powerful naysayers. Where Wall Street and Silicon Valley view success in the world 90 days at a time, we look at world progress in terms of decades.”

Middleton continues, “Case in point – P2P capital markets encompasses so much more than mere finance. Transferable capital has three major components:

• Financial capital, i.e., stocks, bonds and currencies
• Human capital, i.e., intellectual property, such as the patents in question, human capital or political capital
• Natural capital, i.e., commodities, forestry and land”

P2P Capital Markets facilitate the ability to trade and distribute all of these pillars of the economy on the most sophisticated, yet most direct, platform the world has seen. Humankind Is essentially being reintroduced to the concept of direct barter, but for the digital age.

VERI tokens are in consideration as a discount mechanism for the licensing of the use of the IP. There are only 2 million left in circulation after adverse litigation.

The VERI community has been active in the support of Veritaseum, forming (independently from Veritaseum and Reggie Middleton) a DAO (distributed autonomous organization) tasked with researching IP licensure prospects from around the world.

For more information on the community, visit Veritaseum Community Telegram group https://t.me/Veritaseumofficial

Tweets of interest"