Banks make a lot of money when the Fed + Treasury outlaw losses

(You can listen to this post above via our podcast series on The Goldmine)

This morning’s explosive quarterly earnings report from JPMorgan is a reminder that ever since financial losses were outlawed last year, Wall Street banks have become insanely profitable. With trillions of dollars worth of stimulus available – both fiscal and monetary – you basically don’t get the wave of bankruptcies that would normally accompany a recession in which 22 million people lost their jobs in just a few months’ time.

The country was deliberately thrown into a recession so abrupt and severe, that the recovery almost had to begin just as quickly. With moratoriums on foreclosure and the ability to roll debt over at significantly lower rates, the banks ended up having too much money reserved for losses that would fail to materialize. And when those losses didn’t occur, the reserves required to be held aside could then be dropped right to the bottom line and magically appear as profits. JPMorgan reported more than $5 billion in these realized profits from the release of loan loss reserves for the first quarter.

And then add the fuel from ultra-low rates and a highly speculative stock market environment and you see the revenues from trading explode as well. All at once.

It’s a bonanza. Retail bankruptcies didn’t show up. Corporate bankruptcies didn’t show up. Lots of stuff got worked out and renegotiated with the ubiquitous grease of easy money on slathered atop everyone’s palms, although most of the palliative financial treatments of this era occurred via DocuSign rather than physical handshake.

Profits for all, losses for none. I promised myself I wouldn’t trot out the old saying about how the Chinese have a single character that expresses both Crisis and Opportunity but, oops, just typed it, couldn’t hold myself back. Not erasing.

Some stats via CNBC:

The bank posted first-quarter profit of $14.3 billion, or $4.50 a share including a $1.28 per share benefit from the reserve release, higher than the $3.10 per share expected by analysts surveyed by Refinitiv.

Companywide revenue of $33.12 billion exceeded the $30.52 billion estimate, driven by the firm’s trading operations, which produced about $1.8 billion more revenue than expected.

Fixed income trading produced $5.8 billion in revenue, a 15% increase that exceeded analysts’ estimates by more than $800 million, on activity in securitized products and credit markets. Equities trading revenue surged 47% to $3.3 billion, a full $1 billion more than estimates, on “strong performance across products.”

Oh, did I mention all the money made from underwriting, advising on deals, IPO issuance, etc? Because it’s a whole vibe in and of itself:

The firm said first-quarter investment banking revenue surged 222%, or a full $2 billion, to $2.9 billion, exceeding the estimate of $2.65 billion.

JPMorgan stock is up 186% over the last five years, 61% over the past 12 months and 23% year-to-date going into today’s open.


JPMorgan Chase beats profit estimates on strong trading, $5.2 billion release of loan-loss reserves (CNBC)

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