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Company News: The Good, the Bad, and the Ugly

Posted by Larry Doyle on April 16th, 2009 8:04 AM |

We have had a stream of earnings results from banks this week. The earnings from Wells Fargo, Goldman Sachs, and JP Morgan have all surprised to the upside. Interestingly, though, the degree of transparency and “quality” of earnings has been decidedly different with each of these institutions.

JP Morgan just released earnings this morning. Earnings per share came in at .40 versus an expectation of .32. The quick snapsot of the numbers reveals broad based positive results across retail banking, equity trading, and fixed income trading. JPM significantly increased loan loss reserves and CEO Jamie Dimon cautioned that the bank may have to further increase reserves given the challenging economic environment. The bank also took significant markdowns in private equity investments.

The lifeblood for any bank is the deposit base, the ultimate source of relative cheap funds. JPM’s deposit base has grown 62% year over year with the acquisition of Washington Mutual.

Dimon and JPM distinguish themselves as the true leader in U.S. banking.

Goldman’s earnings gamed the calendar as they did not make an apples to apples comaprison versus a year ago. What does that mean? Goldman changed its reporting calendar from a December-November reporting period to January-December reporting. In doing so, Goldman did not fully highlight the disastrous numbers in December 2008. While Goldman’s franchise and risk management are superb, the headline report was not totally forthcoming.

Let’s revisit the Wells Fargo report. Many analysts initially questioned the lack of transparency and overall quality of earnings reported by Wells. Jonathan Weil of Bloomberg again stands out by the depth of his analysis. He reports Wells Fargo Profit Looks Too Good To Be True. Weil highlights 4 gimmicks: (more…)

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