Financial institution earnings are good.
Effectively, Goldman Sachs (GS) and JP Morgan (JPM) are good, Wells Farge (WFC) – not a lot. And I am undecided I might name JPM “good” as $5.2Bn of the quarter’s $14.3Bn in revenue got here from the discharge of mortgage reserves that had been put aside final yr to cowl anticipated mortgage defaults. For the reason that Federal Authorities threw $6Tn on the economic system since then – it seems they did not want the $5.2Bn to cowl dangerous loans so now the cash (which was all the time within the financial institution) is moved to the earnings facet of the ledger.
I’ve all the time objected to Mortgage Loss Reserve accounting as a result of it permits a financial institution (and plenty of different firms) to take income which have already been declared (and already moved the inventory) out of Money (displaying a loss on demand for taxes, housecleaning, and many others.) after which again to income once they really feel prefer it (to spice up the inventory worth or save 1 / 4). Particularly for Companies which can be in a position to purchase again their very own inventory when the worth is depressed on account of a loss they purposely induced after which, once they need to promote extra inventory or take bonuses – they merely re-recognize the earnings on demand. What a rip-off!
So what we’ve at JPM is a large “beat” as income had been projected to be $3.10 per $154 share for the quarter and now it is $4.50 – nearly 50% larger than projected. Even when we assume the financial institution goes again to “regular” $8Bn quarters, we’re nonetheless taking a look at a $40Bn yr and you should purchase the entire financial institution for $473Bn – not dangerous. We have already got Goldman Sachs (GS) in our Lengthy-Time period Portfolio (LTP) so we’re not going so as to add JPM and GS additionally knocked it out of the park. We had been nervous about JPM as a result of they’ve bizarre banking (chase) and we did not depend on these stimulus checks to generate a lot enterprise however they did – primarily as a result of the Authorities wired the cash to your financial institution and did not simply ship you a examine to spend. We had been far too conservative with GS after we made it a Prime Commerce Thought for our Members on October 14th: