Displaying items by tag: JP Morgan

From Reuters - Thu Sep 17, 2009 7:49pm: "Option" mortgages to explode, officials warn

The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset.

"Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama's administration to discuss ways to combat mortgage scams.
...
In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state's attorney general, Terry Goddard, told Reuters after the meeting.

"It's the other shoe," he said. "I can't say it's waiting to drop. It's dropping now."

Rewind the blog's database 8 and a half months:

Option ARMs: The Banking Backdrop of 2009 (January 04, 2009)

The problem ahead: According to Fitch, of the nearly $200 bn of option ARMs outstanding, roughly $29 bn of loans are expected to recast by 2009. Of this $6.6 bn constitute 2004 vintage (that would be recast as a result of completion of the end of five-year term in 2009) and $23 bn constitute 2005 and 2006 vintage loans that would recast early due to the 110% balance cap limit.
Further an additional $67 bn is expected to recast in 2010, of which $37 bn belong to 2005 vintage (that would be recast as a result of completion of the end of five-year term in 2010) and the balance $30 bn consist of 2006 and 2007 vintage loans that would be recast early due to the 110% balance limit cap

 Who are the current option ARM kings due to acquisition?

The title just about says it all. The only thing missing is that it doesn't tell you that the banks that are too big to ensure financial stability are still getting bigger, and riskier. Before we go on, let's get a few things established for those who have not followed me regularly. Note to avoid redundancies: If you have not read me regularly, I suggest you peruse the "Credibility" side bar below. If you have not followed my recent banking articles over the last few weeks, then continue below. If you have been hanging off of my every word, then skip down to the "Break'em up, and break'em up now!" section, otherwise please read on. I strongly believe that the content of this article can change many a perception of the big banks in this country, and hopefully alert many to the risks that have been concentrated therein, even after the meltdowns that we have had to suffer at the collapse of

The title just about says it all. The only thing missing is that it doesn't tell you that the banks that are too big to ensure financial stability are still getting bigger, and riskier. Before we go on, let's get a few things established for those who have not followed me regularly. Note to avoid redundancies: If you have not read me regularly, I suggest you peruse the "Credibility" side bar below. If you have not followed my recent banking articles over the last few weeks, then continue below. If you have been hanging off of my every word, then skip down to the "Break'em up, and break'em up now!" section, otherwise please read on. I strongly believe that the content of this article can change many a perception of the big banks in this country, and hopefully alert many to the risks that have been concentrated therein, even after the meltdowns that we have had to suffer at the collapse of

First of all, I would like to call attention to a well written article by J.S. Kim, The Coming Consequences of Banking Fraud. It just so happens to mirror my thoughts, exactly. Those who have been following my subscription services for a while, or even have just started, should realize that I have been quite accurate in my fundamental analysis.  Although I am not always 100% on the money with everything, I am within the ballpark 80% to 90% of the time, give or take - which is quite a strong track record. The problem has been over the last quarter or two, that accuracy with the fundamentals has meant relatively little in terms of actual share prices. This means (it always has and always will) that we are in a severe speculative bubble (or conversely a fear driven post crash lull). I think we all know which one it is. It has even gotten to the point where some commenters on the blog claim "fundamentals no longer matter". The last time I heard that preached consistently was right before the dot.com crash, which was notoriously hard to time, but was clear as day in the ability to be seen coming by those who still counted profits and losses.

First of all, I would like to call attention to a well written article by J.S. Kim, The Coming Consequences of Banking Fraud. It just so happens to mirror my thoughts, exactly. Those who have been following my subscription services for a while, or even have just started, should realize that I have been quite accurate in my fundamental analysis.  Although I am not always 100% on the money with everything, I am within the ballpark 80% to 90% of the time, give or take - which is quite a strong track record. The problem has been over the last quarter or two, that accuracy with the fundamentals has meant relatively little in terms of actual share prices. This means (it always has and always will) that we are in a severe speculative bubble (or conversely a fear driven post crash lull). I think we all know which one it is. It has even gotten to the point where some commenters on the blog claim "fundamentals no longer matter". The last time I heard that preached consistently was right before the dot.com crash, which was notoriously hard to time, but was clear as day in the ability to be seen coming by those who still counted profits and losses.

JPM derivative and off balance sheet lending commitments and guarantees exposure

Warning!!! This is the type of investigative, unbiased and independent analysis that you will never find in the mainstream media. Long live the Blogoshpere!!!

As we step through the various exposures that this most esteemed bank has, keep in mind that as of June 30, 2009 JPM's common shareholder's equity and tangible common equity stood at $147 bn and $79 bn, respectively. You tell me if the risk inherent in our banking system has been mitigated, please!

Off balance sheet lending commitments and guarantees

As of June 30, 2009, JPM had exposure of $85 billion (or 108% of its tangible equity) towards off balance sheet lending commitments and guarantees. The contractual amount of the off balance sheet lending commitments and guarantees represents the maximum possible credit risk should the counterparty draw upon the commitment or JPM be required to fulfill its obligation under the guarantee, and the counterparty subsequently fail to perform according to the terms of the contract.

JPM derivative and off balance sheet lending commitments and guarantees exposure

Warning!!! This is the type of investigative, unbiased and independent analysis that you will never find in the mainstream media. Long live the Blogoshpere!!!

As we step through the various exposures that this most esteemed bank has, keep in mind that as of June 30, 2009 JPM's common shareholder's equity and tangible common equity stood at $147 bn and $79 bn, respectively. You tell me if the risk inherent in our banking system has been mitigated, please!

Off balance sheet lending commitments and guarantees

As of June 30, 2009, JPM had exposure of $85 billion (or 108% of its tangible equity) towards off balance sheet lending commitments and guarantees. The contractual amount of the off balance sheet lending commitments and guarantees represents the maximum possible credit risk should the counterparty draw upon the commitment or JPM be required to fulfill its obligation under the guarantee, and the counterparty subsequently fail to perform according to the terms of the contract.

For those of you who don't follow me regularly, I find it a travesty that banks insured by taxpayer dollars (ultimately) are allowed to take the risks that they do to chase earnings, then get to keep the profits as we indemnify the losses. This blatant risk taking paid off for Goldman this quarter (well, sort of, unless you actually take the risk into consideration when tabulating profit - risk that was incompletely reported, see The Goldman conspiracy theory is now no longer a theory). It also appeared to pull JP Morgan's fat out of the fire as well. The caveat is that these companies have big, rapidly deteriorating credit issues on their balance sheets, and the investing public is being given a smoke and mirrors routine based on strong, but risky and hyper-volatile trading profits to distract them from what caused the greatest recession of all time (thus far, it may get worse) - and that is credit issues. Fat trading profits are transient, these banks balance sheet holes and credit issues aren't. It's just that simple. And what about the banks that don't have trading arms to hide their negative earnings under??? Now, on to the review of credit issues in the JPM conference call...   

Leveraged loans marked 42 cents on the dollar

"First on leverage lending if you recall we started with $43 billion on a pro forma basis with Bear Stearns back in September, 2007 and that's on a notional basis. Now we carry a remaining amount of market value of $3.3 billion and that's carried at roughly $0.42 on the dollar so those are marked down values for what remains."

Now I'm going to be very quick going through the next three slides so I'm just going to make some common points, so the first point is that obviously when you look at home equity prime and sub prime, you're going to see the charge-offs continue to trend higher versus prior periods and in a couple of cases prime and sub prime we up our future guidance but the second point is that across each of these portfolios, so I just want to say it once, they flow into the early delinquency buckets and the dollar value of loans that are sitting in the early delinquency buckets has started to stabilize [this part of the comment seems to be referring to a very short term observation from which they have drawn a positive conclusion that flies in the face of the longer term trend, marked in bold above] .

For those of you who don't follow me regularly, I find it a travesty that banks insured by taxpayer dollars (ultimately) are allowed to take the risks that they do to chase earnings, then get to keep the profits as we indemnify the losses. This blatant risk taking paid off for Goldman this quarter (well, sort of, unless you actually take the risk into consideration when tabulating profit - risk that was incompletely reported, see The Goldman conspiracy theory is now no longer a theory). It also appeared to pull JP Morgan's fat out of the fire as well. The caveat is that these companies have big, rapidly deteriorating credit issues on their balance sheets, and the investing public is being given a smoke and mirrors routine based on strong, but risky and hyper-volatile trading profits to distract them from what caused the greatest recession of all time (thus far, it may get worse) - and that is credit issues. Fat trading profits are transient, these banks balance sheet holes and credit issues aren't. It's just that simple. And what about the banks that don't have trading arms to hide their negative earnings under??? Now, on to the review of credit issues in the JPM conference call...   

Leveraged loans marked 42 cents on the dollar

"First on leverage lending if you recall we started with $43 billion on a pro forma basis with Bear Stearns back in September, 2007 and that's on a notional basis. Now we carry a remaining amount of market value of $3.3 billion and that's carried at roughly $0.42 on the dollar so those are marked down values for what remains."

Now I'm going to be very quick going through the next three slides so I'm just going to make some common points, so the first point is that obviously when you look at home equity prime and sub prime, you're going to see the charge-offs continue to trend higher versus prior periods and in a couple of cases prime and sub prime we up our future guidance but the second point is that across each of these portfolios, so I just want to say it once, they flow into the early delinquency buckets and the dollar value of loans that are sitting in the early delinquency buckets has started to stabilize [this part of the comment seems to be referring to a very short term observation from which they have drawn a positive conclusion that flies in the face of the longer term trend, marked in bold above] .

Everybody on this blog was explicitly warned about this in regards to Goldman. This weekend, I will go through some the other banks in granular detail, as well.

From Bloomberg: Regulators May Make Banks Raise Capital Levels With Stress-Test Accounting

Financial regulators may force many of the largest U.S. banks to raise new capital or conserve extra cash after accounting for assets held off their balance sheets.

The Federal Reserve yesterday released the methods used in stress tests on the 19 largest U.S. banks, which incorporated an accounting proposal that would bring about $900 billion onto lenders’ books. there is no reason why GS should not be tanking now. They knew this was coming which is why they decided to sell a secondary offering at what was near an historical low. To think they actually got enough patsies to buy it.

The accounting change suggests most of the 19 will need to take some action to buttress their capital, analysts said. Stronger banks may keep dividend payments low or apply retained earnings, with others selling new shares to make up the amounts, they said.