JP Morgan

Ten bailed-out banks were deemed healthy enough to return almost $70B in TARP money to the Treasury:

  • JP Morgan Chase
  • Goldman Sachs
  • Morgan Stanley
  • American Express
  • Capital One
  • US Bancorp
  • Bank of NY Mellon
  • BB&T
  • State Street
  • Northern Trust

Interesting scenario because if I were offered a loan at 5%, I would hang onto it.

Then again, this particular loan had clauses that restricted compensation and allowed government and ultimately public scrutiny over spending patterns. So it’s no surprise that these notoriously private banks treated TARP like a hot potato.

It also doesn’t hurt that an early payback makes these banks look good. Which in turn may bolster their stock prices–an example of fiscal strategy impacting PR.

However, although it appears that the umbilical cord to the government was completely clipped by returning TARP funds, a few of these banks are still receiving government aid. For example:

  1. The Temporary Guarantee Liquidity Program: Among other things, this program supports capital-raising via commercial paper, et al, to help banks maintain their capital requirements and keep their doors open.
  2. TARP Payments from Other TARP Institutions: AIG still has its TARP money. It also still has credit default swaps on its books, and owes payment to counterparties (which can be other banks).

    It’s widely discussed, for example, that Goldman Sachs will receive additional TARP money as the counterparty on AIG derivative contracts. But there’s nothing wrong with that–if you bought an insurance contract and needed it paid out, you would be entitled to receive the payout no matter the source.

It’s a positive step that these banks are returning TARP money. But the recovery isn’t over yet for these banks.

And as a side note, imagine if this returned TARP money were loaned at a low interest rate to consumers with mortgages and credit card debt so that consumers could payback their high interest loans early?

It wouldn’t be completely equitable since it’s our taxpayer money anyway, plus some taxpayers paid more than others. Nevertheless, it would be an offer none of us would probably refuse.

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It’s Earnings Season!

What does that mean, you ask? After each quarter ends, public corporations report their earnings for that quarter. This happens the month after each quarter ends–January, April, July, and October.

Earnings are an indicator of how well the company is being managed, how well their business model is working, and basically helps investors determine if that’s a company whose stock they’d profit from owning.

Imagine if you had to share with the world the amount of your take-home pay. If it went up compared to the same period last year, it’s a fair conclusion that you did something during the previous year to increase your worth in the job market.

If you’re a guy, this may mean it’ll be easier to find a wife who’ll want to invest in your life. If you’re a woman, it usually means the opposite…can’t win them all…

With companies, higher earnings typically mean the company is doing something right, making their stock more enticing to own. Which causes demand to grow for their stock, and the price of the stock to rise. Earnings up compared to last year? Or earnings better than expected? It’s a good thing.

Take a look at this man:
He looks proud of himself, no? That’s because this is Jaime Dimon, the CEO of JP Morgan Chase. With all of the destruction surrounding the financial services industry last quarter, one would expect major losses and declines in earnings for banks.

In particular, when last quarter included double digits declines in the market in October and November, and a moment when the Dow fell close to 7500. And particularly when your business is banking and consumers may not have had the money to buy your CDs, get a mortgage or car loan from you, or buy the products of the small businesses you helped fund.

Well, as some TV character whose name I forget because it was a generation before me used to say: “Surprise, surprise, surprise!” Argh…who was that guy…?

JP Morgan’s earnings went UP last quarter! They posted a gain of 7 cents per share. So if you multiplied this number times the number of outstanding shares, you’d get their approximate market value. So their value has gone up in the market. It’s synonymous to your getting a raise…you’d look a little more enticing in the dating market, wouldn’t you?

How was this possible in this economic climate? It helped that JP Morgan bought WAMU, and received TARP money. And Dimon said himself that without the WAMU purchase, they would have posted a 28 cents per share loss. Aaaah, there you go.

In a way, the TARP money helped in that it appeared to make JP Morgan look more profitable and thus, more valuable to the market.

But has JP Morgan increased lending and other direct aid to its Main St customers? Perhaps–we just haven’t heard too many concrete examples.

But we do know this: that the firm added $4.1B to its reserves last quarter to help pay for future losses on its balance sheet.

An investor like myself would feel better if that money were used to lower interest rates on outstanding credit cards or mortgages, and give Main St a relief. I’m not entirely happy after hearing this bit of news.

Which may be why its stock price is up a little today, but not as much as it could’ve been after reporting an elusive profit like that in this kind of climate.

I’m happy and impressed that JP Morgan posted a profit, but I’m skeptical of the means. I wish I could Google TARP and find out exactly how each company used the money.

Just like how I Google’d “Surprise, surprise, surprise” and found out that it was Gomer Pyle who said that. Now I can sleep tonight.

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Why does this picture make me feel as if Neel Kashkari plans to scoop up my taxpayer dollars and hide in a cave? Only to be sought out by a hobbit?

This is the guy who is responsible for overseeing TARP–the Troubled Assets Relief Program. The rationale was if the government bought the mortgage-backed securities, collateralized debt obligations, and other loan-based securities that have declined in value, then banks would resume lending.

But in a stunning change of heart, Paulson decided to use the money to inject capital directly into banks–in particular, by buying their stock. Which also should have had the effect of lifting stock prices.

But the one missing element was that how were we as taxpayers informed of how the lucky TARP fund recipients planning to use the money? Well…we weren’t.

And since this recession is characterized by a lack of confidence amongst lenders and investors, this switch and lack of transparency didn’t help (not to mention the three page summary Paulson gave to congress at first, and yet another “We must do this now or we’ll all die!!” line of reasoning).

Banks are afraid to lend because what if the lendee didn’t pay the loan back? Then the bank may lose capital, may not be able to make their overnight capital requirements, may not be able to get a loan from a fellow commercial bank, and as a result have to shut their doors.

And consumers are still afraid to invest because…well, would you invest in a market led by the current cast of characters? Perhaps for the long term, but if you need your money in the short term, sleeping at night would be rough if you kept your money in this stock market.

Now we’re set to give the Obama administration the remaining TARP money. This time, Obama wants to make the doling and usage of the funds transparent–even allow it all to be trackable online.

So far, Obama has proven to be effective in getting action and getting others to ask “how high?” when he says “jump”.

But will he be able to get Citigroup or JP Morgan to say specifically, for the whole public to see, how they’re using this money?

I’ll be watching how Wall St responds to Obama. So far, we like him…but will the big banks let Obama tickle the soft part of their underbellies while they wag their tails?

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