I was reading a Reuters article about the Jamie Dimon conference call and was astounded at some of the statements he made and at how he arrived at a better profit. In the article the author tells it like it is. He says that JP Morgan (JPM) is the bellweather of the major banks. Yet he does not paint a very pretty picture of the status of JP Morgan's finances or outlook.
What hit me between the eyes was Dimon's amazing statement here:
Dimon, who was named Banker of the Year by American Banker magazine in December, said he expects the bank to make more loans once the economy recovers. When pressed as to when he expects the recovery, he said, "There are some good signs out there, but we don't know."
Here is a fellow who runs the most powerful bank in the United States saying that he will lend after the economy recovers. Did any Obama administration official ask the banks if that was going to be their method of operation before billions were wasted bailing them out? This is nuts. The United States would have been better off setting up new state banks, funding them, and letting them loan out to all the regional banks. That could have been a major jumpstart to the economy. The banks won't lend, as they are afraid of Basel 3 requirements that are coming a few years from now. These are zombie banks.
So we have a circular economic trap. This is how it plays out: 1. The economy is in the tank. 2. The banks won't lend until the economy gets better. 3. Without the banks lending, how can the economy get better?
Regarding the better bottom line profit, we see that JP Morgan beat numbers by pushing delinquencies for credit cards out. The bank gave customers a break by allowing them to skip May payments. And the bank set aside 33 percent of profit for bonuses when the industry was setting aside a much higher number, according to the article 45 to 50 percent.
As an aside, that 33 percent seems like a reasonable number. It destroys the argument of others like Goldman Sachs (GS) and Wall Street in general that huge bonuses are needed to keep key people, robbing from taxpayers and shareholders. Maybe a ceiling on percentage of profit could be mandated as the amount allowed for bonuses.
Are you listening Mr. President? You want to regulate Wall Street? Then put a percentage ceiling on bonuses based on the bottom line. Of course 33 percent of zero would be zero. But the jobs are based on risk and the bonuses should be as well.
So then, as to profits, we also see a huge increase in prime mortgage defaults. Folks, that is only going to get worse. In that sense, Wall Street is tied to Main Street although I think they wish they were completely insulated from the riff raff that is the rest of us. The prosperity of main street will make a difference to the bottom lines of these banks. Without their lead in helping the economy, that prosperity may be some years away.
Disclosure: no positions