JPM - JP Morgan

[John Hjorth]

CNBC [April 4^th 2019] - Markets : Jamie Dimon: US ‘absolutely’ right to enter trade war, despite short-term economic toll.

[Spekulatius]

As for the lower tax rate, it would be interesting to see studies, if this earnings boost is at least partly competed away. Given how important taxation is, I am surprised there haven’t been many studies on this. So far, I haven’t seen much evidence of lower pretax profit margins. there are also some natural experiment available across state lines where different income tax rate can cause distortions that might be analyzable..

 

competed away. meaning what? all C corps have same lowered tax rate (and LLCs, and LLCs in "bad" industries like law and accounting having managing members earning less than $315K income filing jointly).  so are you saying some c corps will do exactly what in this competing away exercise?

 

It would simply mean they would lower prices as the return on investment hurdle is post tax not pre tax. I believe lower returns would be most likely caused by new entrants. I don’t think existing market participants would likely lower prices.

[Spekulatius]

CNBC [April 4^th 2019] - Markets : Jamie Dimon: US ‘absolutely’ right to enter trade war, despite short-term economic toll.

 

He is right, the IP part is the most important part of the unfair trade issue with China, followed by market access. It won’t solve the trade deficit issue with China though.

[SHDL]

competed away. meaning what?

 

Spekulatius gave a succinct explanation above, but the reasoning is that a tax cut leads to higher after-tax margins which give companies a stronger desire to grow their business by taking market share from their competitors. In the case of banks they could try to do so by offering lower fees, lower rates on loans, higher rates on deposits, etc.  The problem is that if everyone does this they will all end up with lower margins, in extreme cases enough to perfectly offset the benefits of the tax cut.

 

I’m somewhat skeptical as to whether that will happen to the big US banks, but anyway, this is what Dimon was talking about.

[Cigarbutt]

On the topic of competing away in an oligopolistic world (increasingly so in the banking industry), the world is getting more sophisticated, JPM, in many ways, under the helm of Mr. Dimon, has been exemplary in its capacity to adapt, US banks have been global outliers in their ability (relative) to "repair" their balance sheets and Mr. Buffett has loaded up on US banks so who am I to say but:

 

The share of

-market cap of financials to GDP

-total financials compensation to GDP

-total trading volume to GDP

have gone up and the cost of financial intermediation (overall even if, as individuals, we figure that fees have come down) has gone up.

 

Maybe, it's unclear where competitive pressures will come from but come, they will.

In his letter, Mr. Dimon mentions the word risk 62 times and the argument is that banks such JPM deserve a premium for risk management but this remains IMHO, to this day, an open-ended question.

Apologies to the longs but "I would rather see Finance less proud and Industry more content” from Winston Churchill, when he chose a course that went against his feelings. 

 

 

 

 

[Guest Schwab711]

so are you saying some c corps will do exactly what in this competing away exercise?

 

In general, lower tax rates lead to higher net income and more importantly, a larger pool of available resources for labor to bargain for. Assuming the tax rate is considered stable and yada yada, labor's % of that pool finds an equilibrium. That equilibrium may be the same % as before the tax change, it may be less or more. Who knows. This also effects banks of any competitive industry differently based on each company's labor as a % of sales. Higher wages leads to inflation in other areas, which further increases costs. Over time, you eventually end back at returns equal to the cost of capital, which is generally unchanged. Cost of capital increases some due to the decline in tax rates but that can be offset by increased debt capacity. All else equal, the cost of capital should be unchanged.

 

Further, each bank originates loans on either a haphazard or calculated [pre-tax] return hurdle. If the bank's ROE > cost of capital at a certain hurdle, they can afford to make loans that just miss the cutoff. This becomes competition through lower rates on loans or more risky loans. Generally, there is more supply of credit, all else equal.

 

Returns are 'competed away' through pressures on expenses and on rates. This effect will not happen perfectly across all companies or all industries. There are winners and losers.

 

Also, I'm not really sure how corp tax rates will increase with a Democrat POTUS if R's control the Senate, which is very likely at the moment. Corp tax rates are probably safe until at least 2022 and probably through maturity of the TCJA.

[John Hjorth]

... Personally, i would much prefer he shortens the letter and each year does a deep dive in one of JPM business lines to help shareholders understand the business and how to properly value it. Or something more like that (specific to banking or JPM and insights to help investors understand the industry and/or value the company).

 

PS: John, thanks for letting everyone know the letter had been posted :-)

 

You're welcome, Viking,

 

Somehow I consider Mr. Dimon - as a major US bank CEO - hoovering at a certain [high] altitude with his recent shareholders letters. So I agree with you on that. Also with regard to shareholder letters he practice delegation. Personally, I consider the Line of Business CEO Letters [17 pages] very informative to get a more detailed insight to JPM's business lines and how they are doing.

[John Hjorth]

On the topic of competing away in an oligopolistic world (increasingly so in the banking industry), the world is getting more sophisticated, JPM, in many ways, under the helm of Mr. Dimon, has been exemplary in its capacity to adapt, US banks have been global outliers in their ability (relative) to "repair" their balance sheets and Mr. Buffett has loaded up on US banks so who am I to say but:

 

The share of

-market cap of financials to GDP

-total financials compensation to GDP

-total trading volume to GDP

have gone up and the cost of financial intermediation (overall even if, as individuals, we figure that fees have come down) has gone up.

 

Maybe, it's unclear where competitive pressures will come from but come, they will.

In his letter, Mr. Dimon mentions the word risk 62 times and the argument is that banks such JPM deserve a premium for risk management but this remains IMHO, to this day, an open-ended question.

Apologies to the longs but "I would rather see Finance less proud and Industry more content” from Winston Churchill, when he chose a course that went against his feelings.

 

You do not have to apologize to anybody, Cigarbutt,

 

I have come to the conclusion, that one of my "To-Do"'s this year is to think more about what I have going on with banks [owned both directly & indirectly, - US banks & European banks]. Right now, I have no idea where that will bring me. Just doing the total exposure calculations may make me sweaty.

 

In general for my basket of three of the Big Four US Banks, I'm perhaps right now blinded by the effects of my obscure functional currency [DKK, pegged to EUR], USD up ~10 percent relative to that within the last year [after I got really roughed up in 2017].

 

Specifically related to JPM, I have a really hard time overall understanding how a US bank of this size [the largest, actually] can grow so much as it has in 2018, taking the general growth in USA into consideration.

[Spekulatius]

On the topic of competing away in an oligopolistic world (increasingly so in the banking industry), the world is getting more sophisticated, JPM, in many ways, under the helm of Mr. Dimon, has been exemplary in its capacity to adapt, US banks have been global outliers in their ability (relative) to "repair" their balance sheets and Mr. Buffett has loaded up on US banks so who am I to say but:

 

The share of

-market cap of financials to GDP

-total financials compensation to GDP

-total trading volume to GDP

have gone up and the cost of financial intermediation (overall even if, as individuals, we figure that fees have come down) has gone up.

 

Maybe, it's unclear where competitive pressures will come from but come, they will.

In his letter, Mr. Dimon mentions the word risk 62 times and the argument is that banks such JPM deserve a premium for risk management but this remains IMHO, to this day, an open-ended question.

Apologies to the longs but "I would rather see Finance less proud and Industry more content” from Winston Churchill, when he chose a course that went against his feelings.

 

I believe the US banking market is an outlier in terms of profitability at least in the developed 1st world countries ). I do not know of any other 1 st world country where banks can generate similar NIM with the possible exception of Britain, which come close.

 

Some 2nd world countries like Brazil, Russia, Chile etc have similar or even better NIMs but the risk is much higher too.

[sleepydragon]

On the topic of competing away in an oligopolistic world (increasingly so in the banking industry), the world is getting more sophisticated, JPM, in many ways, under the helm of Mr. Dimon, has been exemplary in its capacity to adapt, US banks have been global outliers in their ability (relative) to "repair" their balance sheets and Mr. Buffett has loaded up on US banks so who am I to say but:

 

The share of

-market cap of financials to GDP

-total financials compensation to GDP

-total trading volume to GDP

have gone up and the cost of financial intermediation (overall even if, as individuals, we figure that fees have come down) has gone up.

 

Maybe, it's unclear where competitive pressures will come from but come, they will.

In his letter, Mr. Dimon mentions the word risk 62 times and the argument is that banks such JPM deserve a premium for risk management but this remains IMHO, to this day, an open-ended question.

Apologies to the longs but "I would rather see Finance less proud and Industry more content” from Winston Churchill, when he chose a course that went against his feelings.

 

I believe the US banking market is an outlier in terms of profitability at least in the developed 1st world countries ). I do not know of any other 1 st world country where banks can generate similar NIM with the possible exception of Britain, which come close.

 

Some 2nd world countries like Brazil, Russia, Chile etc have similar or even better NIMs but the risk is much higher too.

 

China bank, for example ICBC, generates enormous profits. When Gary Cohn went to work for white house, and disclosed his personal holdings, he disclosed that he own 20+ million shares of ICBC. I don't think chinese government will ever let ICBC fail.

 

[Spekulatius]

 

China bank, for example ICBC, generates enormous profits. When Gary Cohn went to work for white house, and disclosed his personal holdings, he disclosed that he own 20+ million shares of ICBC. I don't think chinese government will ever let ICBC fail.

I wouldn’t call ICBC’s profit enormous. NIM  is 2.3%, ROA :1.1% and ROE 13.8%. These are OK, but not great numbers.

[gokou3]

On the topic of competing away in an oligopolistic world (increasingly so in the banking industry), the world is getting more sophisticated, JPM, in many ways, under the helm of Mr. Dimon, has been exemplary in its capacity to adapt, US banks have been global outliers in their ability (relative) to "repair" their balance sheets and Mr. Buffett has loaded up on US banks so who am I to say but:

 

The share of

-market cap of financials to GDP

-total financials compensation to GDP

-total trading volume to GDP

have gone up and the cost of financial intermediation (overall even if, as individuals, we figure that fees have come down) has gone up.

 

Maybe, it's unclear where competitive pressures will come from but come, they will.

In his letter, Mr. Dimon mentions the word risk 62 times and the argument is that banks such JPM deserve a premium for risk management but this remains IMHO, to this day, an open-ended question.

Apologies to the longs but "I would rather see Finance less proud and Industry more content” from Winston Churchill, when he chose a course that went against his feelings.

 

I believe the US banking market is an outlier in terms of profitability at least in the developed 1st world countries ). I do not know of any other 1 st world country where banks can generate similar NIM with the possible exception of Britain, which come close.

 

Some 2nd world countries like Brazil, Russia, Chile etc have similar or even better NIMs but the risk is much higher too.

 

China bank, for example ICBC, generates enormous profits. When Gary Cohn went to work for white house, and disclosed his personal holdings, he disclosed that he own 20+ million shares of ICBC. I don't think chinese government will ever let ICBC fail.

 

I don't believe the books of Chinese books or any SOE (state-owned enterprises) for that matter...

 

Also, keeping a company solvent and completely destroying shareholder values are not mutually exclusive, as we saw with AIG and many US banks back at GFC.

[Gregmal]

Oh Look, JPM is A-OK...shocking

[John Hjorth]

JP Morgan Chase [June 27^th 2019] : JPMorgan Chase Plans Dividend Increase and $29.4 Billion Capital Repurchase Program.

 

New York, June 27, 2019 - JPMorgan Chase & Co. (NYSE: JPM) (“JPMorgan Chase” or the “Firm”) announced today that the Federal Reserve Board does not object to the Firm's capital plan under the recently concluded 2019 Comprehensive Capital Analysis and Review (“CCAR”). JPMorgan Chase’s Board of Directors intends to increase the quarterly common stock dividend to $0.90 per share (up from the current $0.80 per share), effective the third quarter of 2019 and has authorized gross common equity repurchases of up to $29.4 billion between July 1, 2019 and June 30, 2020 under a new common equity repurchase program.

[dcollon]

Relatively recent interview with Jamie Dimon

 

[RuleNumberOne]

https://www.bloomberg.com/news/articles/2019-08-06/jpmorgan-s-wework-ipo-pursuit-many-years-and-loans-in-the-making

 

This is leverage upon leverage upon leverage:

 

- WeWork has "leveraged" a business where losses exceed revenue into a $47 billion valuation ($1.9 billion loss, $1.8 billion revenue last year).

- The WeWork founder then borrowed against his stock to buy homes.

- JPM then marked  mortgages on these homes as an asset leveraged upon shareholders equity.

 

"When WeWork Cos.’ Adam Neumann sits down with investment bankers, he’s known to casually mention one of his longtime financial advisers: JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon.

 

Neumann and Dimon chat from time to time. A JPMorgan fund bought a stake in WeWork five years ago and the bank has since propelled the startup’s growth, providing more financing than any other lender. When Neumann wanted to use his stock to borrow money, the bank made it happen. When he added to his collection of luxury homes, JPMorgan was the lender, issuing almost $40 million in mortgages."

[RuleNumberOne]

This looks like a big conflict of interest at WeWork. Margin loans and mortgages for the founder from JPM and JPM gets to lead the IPO. Good for JPM.

 

https://www.bloomberg.com/news/articles/2019-08-06/jpmorgan-s-wework-ipo-pursuit-many-years-and-loans-in-the-making

 

This is leverage upon leverage upon leverage:

 

- WeWork has "leveraged" a business where losses exceed revenue into a $47 billion valuation ($1.9 billion loss, $1.8 billion revenue last year).

- The WeWork founder then borrowed against his stock to buy homes.

- JPM then marked  mortgages on these homes as an asset leveraged upon shareholders equity.

 

"When WeWork Cos.’ Adam Neumann sits down with investment bankers, he’s known to casually mention one of his longtime financial advisers: JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon.

 

Neumann and Dimon chat from time to time. A JPMorgan fund bought a stake in WeWork five years ago and the bank has since propelled the startup’s growth, providing more financing than any other lender. When Neumann wanted to use his stock to borrow money, the bank made it happen. When he added to his collection of luxury homes, JPMorgan was the lender, issuing almost $40 million in mortgages."

[dcollon]

Recent Interview in Davos with Jamie Dimon

 

[CorpRaider]

He shoulda' jacked Kernan up.

[dcollon]

I completely agree CorpRaider. 

[Gregmal]

Great interview, I love Dimon.

 

But I was appalled that they talked so much about politics. Sanjeev! Another thread needs to be moved.

[Spekulatius]

He shoulda' jacked Kernan up.

 

Joe Kernen ought to be one of the worst interviewers in TV history. It’s funny how he gets agitated and starts to rant when Dimon mentioned the CO2 problem and carbon tax as a solution.

[Mephistopheles]

He shoulda' jacked Kernan up.

 

Joe Kernen ought to be one of the worst interviewers in TV history. It’s funny how he gets agitated and starts to rant when Damon mentioned the CO2 problem and carbon tax as a solution.

 

he did the same thing when Moynihan talked about climate change. What a shame

 

I always thought Kernan was a fun comic relief in interviews and liked the chemistry between him and the others esp with Buffett interviews. But his climate denial has gone too far

[RadMan24]

He shoulda' jacked Kernan up.

 

Joe Kernen ought to be one of the worst interviewers in TV history. It’s funny how he gets agitated and starts to rant when Damon mentioned the CO2 problem and carbon tax as a solution.

 

he did the same thing when Moynihan talked about climate change. What a shame

 

I always thought Kernan was a fun comic relief in interviews and liked the chemistry between him and the others esp with Buffett interviews. But his climate denial has gone too far

 

Yea he seemed a little off. Letting it get to him a little bit more than normal lately. Dimon as always makes good points about policy.

[fareastwarriors]

JPMorgan says CEO Jamie Dimon is recuperating after emergency heart surgery

 

 

https://www.cnbc.com/2020/03/05/jpmorgan-says-ceo-jamie-dimon-is-recuperating-after-emergency-heart-surgery.html