Bank earnings are good.
Well, Goldman Sachs (GS) and JP Morgan (JPM) are good, Wells Farge (WFC) – not so much. And I’m not sure I’d call JPM “good” as $5.2Bn of the quarter’s $14.3Bn in profit came from the release of loan reserves that were set aside last year to cover anticipated loan defaults. Since the Federal Government threw $6Tn at the economy since then – it turns out they didn’t need the $5.2Bn to cover bad loans so now the money (which was always in the bank) is moved to the income side of the ledger.
I have always objected to Loan Loss Reserve accounting because it allows a bank (and many other companies) to take profits that have already been declared (and already moved the stock) out of Cash (showing a loss on demand for taxes, housecleaning, etc.) and then back to profits when they feel like it (to boost the stock price or save a quarter). Especially for Businesses that are able to buy back their own stock when the price is depressed due to a loss they purposely caused and then, when they want to sell more stock or take bonuses – they simply re-recognize the earnings on demand. What a scam!
So what we have at JPM is a huge “beat” as profits were projected to be $3.10 per $154 share for the quarter and now it’s $4.50 – almost 50% higher than projected. Even if we assume the bank goes back to “normal” $8Bn quarters, we’re still looking at a $40Bn year and you can buy the whole bank for $473Bn – not bad. We already have Goldman Sachs (GS) in our Long-Term Portfolio (LTP) so we’re not going to add JPM and GS also knocked it out of the park. We were worried about JPM because they have ordinary banking (chase) and we didn’t count on those stimulus checks to generate so much business but they did – mainly because the Government wired the money to your bank and didn’t just send you a check to spend. We were far too conservative with GS when we made it a Top Trade Idea for our Members on October 14th: