“Hopefully… It’s not the beginning of something really bad.”
JP Morgan Chase is a money-making machine. Profits in the fourth quarter rose 10% to $5.4 billion, bringing the total for 2015 to a record $24.4 billion. But it was a mixed bag of the good, the bad, and the rotting – of the type we haven’t seen in six years.
So revenues fell 2% for the year (under GAAP), which is to be expected, given that revenues of S&P 500 companies have fallen for four quarters in a row, according to FactSet. It’s been the worst revenue recession since 2009. It’s tough out there.
Total assets at the bank fell 3% to $2.35 trillion during the quarter, which CFO Marianne Lake explained this way during the earnings call this morning (transcript via Seeking Alpha): “The balance sheet was down in part purposefully and a little bit because of market conditions at the year end.”
But JP Morgan did what American companies do so well: it cut costs to more than make up for the revenue declines.
This cost cutting included over 5,000 layoffs across its four major business units – corporate and investment banking, consumer and community banking, asset management and commercial banking – with the first 1,000 folks already gone by May 2015 when the layoffs were first reported. At the time, the bank announced it would also overhaul its 5,000-plus branches, with technology replacing some humans.
In 2014, it had already axed 7,900 people in its mortgage division. It has been axing people quarter after quarter, for years. Since its peak in Q1 2012, headcount has dropped over 10% to 234,598.
And so, annual expenses fell 4%. Lake ascribed it to “lower headcount” and “branch efficiency.” And there was also a “modest benefit from the strengthening dollar.”
Then there was the rotting element. JP Morgan added $136 million to its loan-loss reserves to cover expected future losses on its loans. Of that, $124 million was associated with its oil & gas loans. It was the first time since Q4 2009 that any of the big four banks – JP Morgen, Citigroup, Bank of America, and Wells Fargo – have added to their loan-loss reserves.
And it’s only the first step. Lake admitted that the bank “would expect to see some additional reserve build in 2016,” but the price of oil would have to remain at about $30 a barrel for about 18 months for it “to be significant.” And that would mean “reserve builds of up to $750 million,” so not anything dramatic for a bank the size of JP Morgan.
“We’re not worried about the big oil companies,” CEO Jamie Dimon threw in. “These are mostly the smaller ones….”
Thus, JP Morgan did the very things that are associated with a recession: a 3% decline in assets, a 2% decline in annual revenues, a 4% decline in annual expenses, including cost cutting, layoffs, and “branch efficiency,” and the first increase in loan-loss reserves in six years.
If enough companies go through this procedures of declining revenues, cost cutting, and layoffs, it can trigger a recession.
Business “is as good as it’s ever been,” Dimon said about his part of the world, despite these conditions. “Obviously it’s going to get a little bit worse,” he added. “We’re not forecasting a recession. We think the US economy looks pretty good at this point.”
Yup, despite declining revenues, asset shedding, cost cutting, and layoffs. And “a little bit worse” would entail even steeper revenue declines and more cost cutting and layoffs? He didn’t say. But the economy can only grow when companies do the exact opposite: sell more, spend more, and hire more!
Pushed on the disconnect between the current “market turmoil” and his view that the economy was hunky-dory, he ran through some of the characteristics of the US economy, including its slo-mo “2% to 2.5% growth for better part of five years”:
People are getting adjusted to China slowing down. When you have commodity prices go down like that there are big winners and losers. The oil companies are the losers. Consumers are the beneficiaries. Brazil gets hurt. India benefits. South Korea benefits. Japan benefits.
And he added: “Hopefully this will all settle down. It’s not the beginning of something really bad.”
Now at the end of the credit cycle, defaults are rising and credit is tightening. Read… OK, I Get it, this is Going to be a Mess: Standard & Poor’s Lowers Boom at Worst Possible Time
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Dimon should be in jail.
To big to jail. And he knows it.
Anything Dimon says should be tossed on a garbage heap along with the commentary from Goldman Sachs. I don’t look at it because it presents a false reality. JPM is not the ministry of truth and they will gladly toss their own clients under the bus to serve a short term goal.
You worry me Wolf. Everything Dimon says serves a manipulative purpose.
P.S – I did not read the full article. In the future substitute ‘ SATAN’ for Dimn or Goldman and perhaps you’ll understand my position.
I don’t mean to pry, but …
“You worry me Wolf. Everything Dimon says serves a manipulative purpose. ”
Can you expand on what you perceive or have quarrel with? I get it the financial press is full of “presstitutes”, but I am having a hard time connecting the dots with what Wolf may or may not have done wrong.
Not saying you are wrong (or right), but looking forward to you articulating your position for the readership here. We are all on the Titanic I think and everyone is more or less invested in trying to find (i.e. understand) where the lifeboats are … and I hope you can contribute.
What I like most about the community here is the deficit of pissing/moaning and the surplus of insight … if I may say so. Hoping to hook you and bring you on board. Welcome!
I like the insight regarding the Titanic and lifeboats. Hopefully things do not become that dire. I notice more stressed out behavior and irritability lately, possibly from many of us suffering a cognitive dissonance. I think it is getting harder for the upper middle class to reconcile their expectations and social obligations with the economic instability lurking out there.
I recall vividly listening to GW Bush saying the economy was fine. This reminds me of just that time with Dimon as he’s getting his lifeboat ready on the sly.
Back in Sept 2015 Citibank put better odds of a recession coming than a casino roulette table ! American roulette the house edge on bets is 5.26%
Well you said it all: “They will gladly toss their clients under the bus”.
Think, after all what happened in last financial crisis they still have clients ( a lot of them)…. Maybe it is not all painted black, it is you who paint picture like that.
Jamie and Lloyd from Government Sacks used to have 1 too many private dinners in WH with ObaMao back in 2011/23 but the bro-romance soured since.
Either Jamie and Lloyd stopped paying extortions and/or pushed back on becoming part of ObaMao grand socialist plan or something.
And if the economy and unemployment #s are so great then why do all these big companies in last 6 months or so laying people off left and right? And what IF low hanging fruit of firing workers excuse is exhausted and there is no longer ZIRP to buy back shares resulting in piss poor PEs even in Non-GAAP?
“Everything Dimon says serves a manipulative purpose.”
Dimon is one of the biggest sociopaths on Wall Street. Unfortunately, one of many big sociopaths on that street.
And yet, the MOTUs just keep pulling the strings. The longer this bullshit goes on, the uglier it’s going to be when Main Street finally wakes up and says, “Enough.”
Well, I supposed that quote might make sense if CREDIT didn’t expand at break neck rates the whole time.
Further, there was massive build out of PRODUCTIVE CAPACITY, on the back of that CREDIT expansion, that is suddenly going to be under utilized capacity burdened with debt.
That tends to lead to CREDIT that wont be paid back and when significant enough tends to cause all the grief that is probably coming down the pike.
More importantly for the US, while commodities and manufacturing are hit first … in time this is going to hit SERVICES if allowed to percolate … which is inevitable if things don’t pick up.
Folks don’t realize that the “relatively quick” busts and booms in productive areas of the economy (in recent decades) don’t tend to hit most Americans right away – due to the fact many work in services … but when the real deal hits the deck, it will eventually hit services … which will be the last to recover if at all. A whole generation of Americans, previously insulated from the real horrors of downturns (my self included), are going to have front row seats in a year or two … if this goes on that long.
Good insights. The way I see it, America hasn’t much touched the surface of frugality yet. Go back and see how our grandparents lived during the Great Depression. Everyone can cut back 20-25% in electrical use without missing any comfort. Everyone can eat out less by 100% without going hungry. Driving has already been reduced since 2008/09 but could go down much, much more.
This is the deflationary collapse that keeps the Fed up at night.
When I grew up as a kid in the 50’s and 60’s we splurged on eating out about once a month as a family event.
Today, I still prefer to eat at home. Most restaurants serve mediocre food at best compared to what can be conjured up at home.
The last seven years have been an eye opener. I now see my parents, who lived through the depression, had wisdom that is sorely in need today.
Debt is a silent killer that should be priority one by every person to shed as quickly as possible by any legal means possible. Pay it off, declare bankruptcy, throw the keys in the mailbox, etc. and avoid like the plague.
Go back to living like your parents or grand parents. Keep the family close and be happy. Live by th Golden Rule.
“there was massive build out of PRODUCTIVE CAPACITY, on the back of that CREDIT expansion”
I’ve witnessed overcapacity in the stock/debt markets, the churning and clipping of paper, and in the commodities side.
But I do not see any investment in American manufacturing. Without well-paying American core industrial jobs we will be spinning our economic wheels until the rubber burns off.
A core problem lays with the low interest rate policy. Cheap, dictated interest rates favor capital (technology is all capital) over labor. E.g. at 3% a $1 million investment starts generating a return when you replace anyone earning more than $30,000 per year.
At 12% you can only start replacing those above the $120,000 level.
(I know this is a simplistic example.)
But unemployment is created by the Fed thru their low/zero interest rate policy. They are either ignorant on the topic or they want their wealthy friends in the money more than they give a damn about the economy.
Manufacturing is gone. Take a look at what Obama Care did to the medical profession- yikes- it was a bastion of high paying professional jobs for docs, nurses, techs of all kinds. Now, it’s nothing but paperwork. Even the seriously qualified teaching & research docs are having big pay changes. I hear about it all the time. This was intentional. The medical industry used to be a place to do well by doing good. No more. As long as we pretend a recovery is even possible with the core destructive policies in place, we are deluding ourselves. Until Americans develop political will to take back the country, there won’t be any lifeboats at all.
My wife and I saw a great movie last night from Masterpiece Theatre. I am sure it can be downloaded, although we get them from the library. While the usual excellent Brit fare, you will recognize some American actors.
It very much reminds me of the .01% split and the endemic corruption. Great for a long winter evening after a day of watching financial shenanigans and corrupt Govt. meddling.
(And yes, time to jail Dimon, Blankfein, Corzine, and 10,000 others)
Title: Worricker Turks and Caicos
Worricker: Turks & Caicos (9 Nov. 2014)
TV Episode | Drama
Warricker is a retired spy living in the Caribbean. He realizes he is in trouble when four “businessmen” show up. They look like mob bosses, but one actually works for the CIA. He gets help from two former MI5 colleagues back in London.
Stars: Helena Bonham Carter, Meredith Eaton, Ralph Fiennes
Good movie. All about dirty hands.
You’ll want to watch ‘The Money Masters’ (full 3.5 hour version) documentary by William T. Still on YouTube. It’s a life changing experience.
another data point…………
Wal-Mart to shutter 269 stores, 154 of them in the US
OK – I’d say Jamie knows lot more than we do based on his Fed-subsidized money making scheme. His army of analyst looked at some metrics and charts and probably said “Whoa this time it is DIFFEREN”!
I guess when you’re the biggest welfare queen the world has ever seen(trillions in bailout and free money from the Fed spigot), and mark-to-fantasy accounting, things look pretty rosy
“We’re not forecasting a recession. We think the US economy looks pretty good at this point.”
No bank EVER officially forecasts a recession (though they prepare for it internally). They warn you, as Dimon just did, between the lines. That’s where you have to look to find out what they’re seeing. Hence the article.
I was mainly referring to “We think the US economy looks pretty good at this point.”
leon cooperman sounds like a pumper and dumper
Not to thread “crap” but I went to CNBC comedy website and found this very well written assessment that many of the Wolf’s followers would wholeheartedly agree:
According to article “But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue”.
So what is new?
“Recession…this isn’t no recession…..this ain’t no steekin recession……..it’s a DEPRESSION!
My apologies to the late John Huston