JPM - JP Morgan

[John Hjorth]

JPM 8-K about Mr. Dimon's situation.

[chesko182]

Shareholder letter out:

 

https://www.jpmorganchase.com/corporate/investor-relations/document/annualreport-2019.pdf

[Viking]

Bank earnings started today. Here are some of my key takeaways from JP Morgan’s earnings call:

 

- we are in a severe recession

- when closing Q1 (in early April) JPM economic outlook for Q2 was for GDP to be down 25% and unemployment to exceed 10%. Since then JPM economists have revised their Q2 outlook and  they now expect Q2 GDP to be down 40% and unemployment to hit 20%.

- both scenarios expect a recovery in the back half of the year

- given deteriorating macroeconomic outlook JPM expects they will need to further increase loss reserves in Q2

- the question is duration - how long does the recession last?

- re-opening of the economy will not be happening until June at the earliest but could be delayed to July or August

 

————————————

There are so many moving parts, regulations and new government programs. Q2 will be ugly. 2H is very hard to read. Bottom line, it is pretty much impossible to model bank results moving forward.

[rb]

Yea. WFC and JPM earnings were not ideal but not horrendous. I think as long as banks didn't do anything too stupid on the asset side they'll probably be ok.

 

The one thing that came in worse than I expected was non-interest income. Especially credit card fees. Those were brutal. That's why I was shocked to see V up strongly today.

 

I mean you expect a decline in card fees because of lower volume. But what you actually get is your high margin volume evaporating because Wal-Mart, Amazon, etc pay way less for card transactions than Jenny's Nails.

[Viking]

I am listening to a few of the bank conference calls to get a better understanding of what they see in Q2 and 2H.

 

What i am learning is so much is going to be riding on what the virus does moving forward. So far pretty much everyone has underestimated the virus and its impact on the economy. It looks to me like everyone is assuming the economy gets back to some sort of normal in 2H.

[Spekulatius]

Bank earnings started today. Here are some of my key takeaways from JP Morgan’s earnings call:

 

- we are in a severe recession

- when closing Q1 (in early April) JPM economic outlook for Q2 was for GDP to be down 25% and unemployment to exceed 10%. Since then JPM economists have revised their Q2 outlook and  they now expect Q2 GDP to be down 40% and unemployment to hit 20%.

- both scenarios expect a recovery in the back half of the year

- given deteriorating macroeconomic outlook JPM expects they will need to further increase loss reserves in Q2

- the question is duration - how long does the recession last?

- re-opening of the economy will not be happening until June at the earliest but could be delayed to July or August

 

————————————

There are so many moving parts, regulations and new government programs. Q2 will be ugly. 2H is very hard to read. Bottom line, it is pretty much impossible to model bank results moving forward.

 

I was a bit surprised to learn that Jamie Dimon doesn’t expect economic restart until June. I expect to see some action already in Mid/late May. It’s going to be a step by step process anyways and not a red ribbon cutting ceremony where the  US is declare open for business.

JPM CC reserve build is roughly 10% of the outstanding balance.  I wonder how much some junkier CC lenders need to reserve.

 

There is a lot riding on a successful restart and rapid recovery obviously. Quite frankly, I expect that most banks might cut their dividend for the 2nd quarter if the situation at that point is still unclear.

[TwoCitiesCapital]

Bank earnings started today. Here are some of my key takeaways from JP Morgan’s earnings call:

 

- we are in a severe recession

- when closing Q1 (in early April) JPM economic outlook for Q2 was for GDP to be down 25% and unemployment to exceed 10%. Since then JPM economists have revised their Q2 outlook and  they now expect Q2 GDP to be down 40% and unemployment to hit 20%.

- both scenarios expect a recovery in the back half of the year

- given deteriorating macroeconomic outlook JPM expects they will need to further increase loss reserves in Q2

- the question is duration - how long does the recession last?

- re-opening of the economy will not be happening until June at the earliest but could be delayed to July or August

 

————————————

There are so many moving parts, regulations and new government programs. Q2 will be ugly. 2H is very hard to read. Bottom line, it is pretty much impossible to model bank results moving forward.

 

I was a bit surprised to learn that Jamie diamond doesn’t expect economic restart until June. I expect to see some action already in Mid/late May. It’s going to be a step by step process anyways and not a red ribbon cutting ceremony where the  US is declare open for business.

JPM CC reserve build is roughly 10% of the outstanding balance.  I wonder how mi h some junkier CC lenders need to reserve.

 

There is a lot riding on a successful restart and rapid recovery obviously. Quite frankly, I expect that most banks might cut their dividend for the 2nd quarter if the situation at that point is still unclear.

 

Many European countries like France have already extended to mid-May and they're before us in all of this. If we follow a similar path, late May or early June is reasonable.

 

But I'm surprised markets haven't reacted more strongly to the build of credit provisions with warnings of more to come - or the massive lockdown in credit availability.

 

Major banks recently announced no new mortgages without 20% down and a 700+ credit score. This type of credit reduction has massive implications for the economy going forward - particularly if housing prices begin to fall as a result.

[Gamecock-YT]

Does anybody know what a bridge book is? I'm familiar with Trading and Banking books, but never heard of a bridge book.

[learner]

Bank earnings started today. Here are some of my key takeaways from JP Morgan’s earnings call:

 

- we are in a severe recession

- when closing Q1 (in early April) JPM economic outlook for Q2 was for GDP to be down 25% and unemployment to exceed 10%. Since then JPM economists have revised their Q2 outlook and  they now expect Q2 GDP to be down 40% and unemployment to hit 20%.

- both scenarios expect a recovery in the back half of the year

- given deteriorating macroeconomic outlook JPM expects they will need to further increase loss reserves in Q2

- the question is duration - how long does the recession last?

- re-opening of the economy will not be happening until June at the earliest but could be delayed to July or August

 

————————————

There are so many moving parts, regulations and new government programs. Q2 will be ugly. 2H is very hard to read. Bottom line, it is pretty much impossible to model bank results moving forward.

 

I was a bit surprised to learn that Jamie diamond doesn’t expect economic restart until June. I expect to see some action already in Mid/late May. It’s going to be a step by step process anyways and not a red ribbon cutting ceremony where the  US is declare open for business.

JPM CC reserve build is roughly 10% of the outstanding balance.  I wonder how mi h some junkier CC lenders need to reserve.

 

There is a lot riding on a successful restart and rapid recovery obviously. Quite frankly, I expect that most banks might cut their dividend for the 2nd quarter if the situation at that point is still unclear.

 

JPM CC reserve will go up in the next quarter as their current reserve models 10% UE rate. They stated their best estimate is 20% UE rate

[Guest roark33]

Most schools in the US have cancelled for the rest of the year, implying that they don't expect things to be back to normal in May. (Schools run through early June).  My state just cancelled the rest of the year today

[Guest roark33]

Does anybody know what a bridge book is? I'm familiar with Trading and Banking books, but never heard of a bridge book.

 

Bridge loans are loans that are committed, but have not sold.  So, T/Sprint deal had a big bridge book loss, they committed to it at a certain price, but by the time they took it to market, the banks had to eat the loss. 

[Spekulatius]

Bank earnings started today. Here are some of my key takeaways from JP Morgan’s earnings call:

 

- we are in a severe recession

- when closing Q1 (in early April) JPM economic outlook for Q2 was for GDP to be down 25% and unemployment to exceed 10%. Since then JPM economists have revised their Q2 outlook and  they now expect Q2 GDP to be down 40% and unemployment to hit 20%.

- both scenarios expect a recovery in the back half of the year

- given deteriorating macroeconomic outlook JPM expects they will need to further increase loss reserves in Q2

- the question is duration - how long does the recession last?

- re-opening of the economy will not be happening until June at the earliest but could be delayed to July or August

 

————————————

There are so many moving parts, regulations and new government programs. Q2 will be ugly. 2H is very hard to read. Bottom line, it is pretty much impossible to model bank results moving forward.

 

I was a bit surprised to learn that Jamie diamond doesn’t expect economic restart until June. I expect to see some action already in Mid/late May. It’s going to be a step by step process anyways and not a red ribbon cutting ceremony where the  US is declare open for business.

JPM CC reserve build is roughly 10% of the outstanding balance.  I wonder how mi h some junkier CC lenders need to reserve.

 

There is a lot riding on a successful restart and rapid recovery obviously. Quite frankly, I expect that most banks might cut their dividend for the 2nd quarter if the situation at that point is still unclear.

 

JPM CC reserve will go up in the next quarter as their current reserve models 10% UE rate. They stated their best estimate is 20% UE rate

 

Yeah, the old heuristic that CC loss rate ~ unemployment rate (for better credit) suggests so

[meiroy]

 

 

 

The current employment situation is a bit like a school's student-attendance during spring break. Obviously an exaggeration, but surely a large amount of those currently unemployed will be hired quickly because the positions still exist -- enhanced by monetary incentives.  I know several small businesses that shut down and won't reopen but surely this 20% is not a real 20%.

 

 

[ERICOPOLY]

It looks to me like everyone is assuming the economy gets back to some sort of normal in 2H.

 

If everyone is assuming a return to some sort of normal in 2H, then for what other reason are banks barely trading higher than tangible book?

[rb]

JPM Leadership: We expect a severe recession ahead so we've increased our provisions to the Holy Shit! level. It may be worse than that. We don't know. May have to cut the dividend. We're telling you now so you can mentally adjust before we do.

 

JPM's Strategy Guy: Stocks going to all time high!

[Jurgis]

JPM Leadership: We expect a severe recession ahead so we've increased our provisions to the Holy Shit! level. It may be worse than that. We don't know. May have to cut the dividend. We're telling you now so you can mentally adjust before we do.

 

JPM's Strategy Guy: Stocks going to all time high!

 

Makes total sense! TINA! YOLO!

[TwoCitiesCapital]

 

 

 

The current employment situation is a bit like a school's student-attendance during spring break. Obviously an exaggeration, but surely a large amount of those currently unemployed will be hired quickly because the positions still exist -- enhanced by monetary incentives.  I know several small businesses that shut down and won't reopen but surely this 20% is not a real 20%.

 

Every day we remain closed is another day where it becomes more likely the 20% is less exaggerated and more like the real number. Sure, some of those jobs will come back when we re-open lockdown, but they'll be replaced with jobs losses from rolling bankruptcies do the collapse in economic activity.

 

I agree that I don't think 20% is the real number, but wouldn't be shocked if the 'real' number ends up being 10-15% which is still massive.

[meiroy]

 

 

 

The current employment situation is a bit like a school's student-attendance during spring break. Obviously an exaggeration, but surely a large amount of those currently unemployed will be hired quickly because the positions still exist -- enhanced by monetary incentives.  I know several small businesses that shut down and won't reopen but surely this 20% is not a real 20%.

 

Every day we remain closed is another day where it becomes more likely the 20% is less exaggerated and more like the real number. Sure, some of those jobs will come back when we re-open lockdown, but they'll be replaced with jobs losses from rolling bankruptcies do the collapse in economic activity.

 

I agree that I don't think 20% is the real number, but wouldn't be shocked if the 'real' number ends up being 10-15% which is still massive.

 

I'm really trying to hang on to my optimism.

 

Is there any source that tries to quantify the different scenarios including the impact of pent up demand?

 

If today, within an hour, the virus vanishes and everything opens 100%. Where would we be? What would unemployment be?

 

 

[gfp]

JPM director, Comcast executive (and Berkshire director) Steve Burke picked up a few JPM shares today -

https://www.sec.gov/Archives/edgar/data/19617/000122520820006522/xslF345X03/doc4.xml

[mcliu]

Interesting that banks are hitting all-time low P/TBV while many stocks are hitting all-time highs.

Lots of high-quality companies like PG trading >30x PE. ADBE >50x PE. SHOP >25x Revenue.

Is this recession only happening for financials?

Why the disconnect?

[rb]

Interesting that banks are hitting all-time low P/TBV while many stocks are hitting all-time highs.

Lots of high-quality companies like PG trading >30x PE. ADBE >50x PE. SHOP >25x Revenue.

Is this recession only happening for financials?

Why the disconnect?

I've been thinking the same thing. There's basically a miss-pricing here. If the S&P is worth 2800 then no way the banks show be this low. If banks are this low, no fucking way should the S&P be worth 2800.

 

Seems like a long-short banks vs s&p might be a good trade at this point.

[Viking]

Interesting that banks are hitting all-time low P/TBV while many stocks are hitting all-time highs.

Lots of high-quality companies like PG trading >30x PE. ADBE >50x PE. SHOP >25x Revenue.

Is this recession only happening for financials?

Why the disconnect?

I've been thinking the same thing. There's basically a miss-pricing here. If the S&P is worth 2800 then no way the banks show be this low. If banks are this low, no fucking way should the S&P be worth 2800.

 

Seems like a long-short banks vs s&p might be a good trade at this point.

 

Given their low yields, government bonds are a likely to be a poor investment right now (long term). Especially with all the spending by governments and the potential for this to stoke inflation down the road.

 

Coronovirus will be with us until a vaccine is ready so many industries are uninevstable: airlines, airline makers, hotels, restaurants, travel, tourism, movie industry, theatres, conventions, arenas. Other segments like retail (think mall/store shopping) are going to really struggle moving forward as sales will remain low. What happens to sellers of seasonal goods (like clothing) and all that worthless inventory that cant be sold.

 

Oil is in a severe bear market so energy stocks are going to continue to struggle.

 

Everyone is expecting the global recession to be the worst since the great depression. This will hurt banks and other cyclical stocks.

 

There is a small subset of companies that will get through the virus/oil/severe recession: cash rich (minimum strong balance sheet) and able to grow top line. Think of companies people need to use to work at home, as an example. Microsoft, google, adobe, amazon, facebook, etc. Select utilities too? Telcos? A ton on money will be looking to buy these very few companies; hello new bubble?

[TwoCitiesCapital]

 

 

 

The current employment situation is a bit like a school's student-attendance during spring break. Obviously an exaggeration, but surely a large amount of those currently unemployed will be hired quickly because the positions still exist -- enhanced by monetary incentives.  I know several small businesses that shut down and won't reopen but surely this 20% is not a real 20%.

 

Every day we remain closed is another day where it becomes more likely the 20% is less exaggerated and more like the real number. Sure, some of those jobs will come back when we re-open lockdown, but they'll be replaced with jobs losses from rolling bankruptcies do the collapse in economic activity.

 

I agree that I don't think 20% is the real number, but wouldn't be shocked if the 'real' number ends up being 10-15% which is still massive.

 

I'm really trying to hang on to my optimism.

 

Is there any source that tries to quantify the different scenarios including the impact of pent up demand?

 

If today, within an hour, the virus vanishes and everything opens 100%. Where would we be? What would unemployment be?

 

That's hard for me to say, but I don't see much value in the exercise seeing as that is NOT what is going to happen.

 

All I can do right now is ask myself does it make sense to pay 17.5x trailing earnings that I know are severely compromised and likely to take multiple years to recover from.

 

My answer is no.

 

I started a trickle of small buys at 2300 because 2300 was 17x my guess for where earnings would be if this were an average recession (-30%). That was my starting point of seeing value in the general market and the point where my fears of a receding tied dropping all boats began to subside.

 

At 2800, we're still absurdly expensive IMO regardless of how quickly we handle the virus because the recession is already coming. The economic damage is already here.

[TwoCitiesCapital]

Interesting that banks are hitting all-time low P/TBV while many stocks are hitting all-time highs.

Lots of high-quality companies like PG trading >30x PE. ADBE >50x PE. SHOP >25x Revenue.

Is this recession only happening for financials?

Why the disconnect?

I've been thinking the same thing. There's basically a miss-pricing here. If the S&P is worth 2800 then no way the banks show be this low. If banks are this low, no fucking way should the S&P be worth 2800.

 

Seems like a long-short banks vs s&p might be a good trade at this point.

 

I agree with you guys that banks are cheap relative to the index, but I think that's because banks are the only ones seemingly acknowledging how bad this is with $25+ billion in reserve build in a single quarter.

 

I'd rather just shirt the index though, or go long puts (which I have). I bought European banks years ago expecting the valuation spread with US banks to eventually close. My guess is that it is closing, but not with Euro banks moving higher. Zero-rates are now here to stay in the U.S. too

[Gregmal]

Interesting that banks are hitting all-time low P/TBV while many stocks are hitting all-time highs.

Lots of high-quality companies like PG trading >30x PE. ADBE >50x PE. SHOP >25x Revenue.

Is this recession only happening for financials?

Why the disconnect?

I've been thinking the same thing. There's basically a miss-pricing here. If the S&P is worth 2800 then no way the banks show be this low. If banks are this low, no fucking way should the S&P be worth 2800.

 

Seems like a long-short banks vs s&p might be a good trade at this point.

 

Given their low yields, government bonds are a likely to be a poor investment right now (long term). Especially with all the spending by governments and the potential for this to stoke inflation down the road.

 

Coronovirus will be with us until a vaccine is ready so many industries are uninevstable: airlines, airline makers, hotels, restaurants, travel, tourism, movie industry, theatres, conventions, arenas. Other segments like retail (think mall/store shopping) are going to really struggle moving forward as sales will remain low. What happens to sellers of seasonal goods (like clothing) and all that worthless inventory that cant be sold.

 

Oil is in a severe bear market so energy stocks are going to continue to struggle.

 

Everyone is expecting the global recession to be the worst since the great depression. This will hurt banks and other cyclical stocks.

 

There is a small subset of companies that will get through the virus/oil/severe recession: cash rich (minimum strong balance sheet) and able to grow top line. Think of companies people need to use to work at home, as an example. Microsoft, google, adobe, amazon, facebook, etc. Select utilities too? Telcos? A ton on money will be looking to buy these very few companies; hello new bubble?

 

Agreed, but "new bubble"? Some of these were already there. If I had a buck for every person who now sees that "hmmm Amazon is probably a pretty good investment..." derp, derp, derp... well, I'd have a lot of dollars.

 

Personally, I dont own any banks yet, but banks and real estate, companies with robust and stable cash flows and ability to return it to shareholders, would be where I lean, rather than the high growth tech stocks that consistently dilute the hell out of you and went parabolic years ago. I love GOOG, but ad spending is toast. I finally forced myself to buy a bit of MSFT the other day, but cant help but look at the 10 year chart and think WTF... Everything in the world is going right for Amazon, so by nature, as a contrarian, that in and of itself is reason not to touch it here.