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JPMorgan Comes Up Short As ‘Hurricane’ Looms
Meteorological phenomena got short shrift in JPMorgan's second quarter earnings materials, but Jamie Dimon did allude to the same oncoming economic storm that made headlines in June, when he warned of an approaching "hurricane."
The world, Dimon said, is "dealing with two conflicting factors, operating on different timetables." For now, the US economy is still growing (actually, it's probably not growing in real terms, but I'll leave that aside) and consumers are able to spend. But all of that
The storm has already started hitting Chinese banks. Presumably European banks will be hit soon. US banks may have the distinction of being the least worst.
Among other things I have done with my life, I worked a side gig as a bank consultant and studied banks. It didn’t take long to discover that in unsettled time, when many excuses for poor performance abound anyway, banks often take the opportunity to raise their reserves for loan losses. They figure what the heck, our income was going to be down anyway so lets take some extra reserve deductions. Even if the stock plunges, losses are only losses when they are realized so knowledgeable shareholders sit tight and wait for the good news. When the smoke has cleared and, yea, credit losses were not as bad as we thought so we can reduce our reserve — a move that boosts income in a big lump. Folks who knew this was coming bought the dip and wow, they made a bunch of money. Twiddling with the loan loss reserve is great sport, especially when those in the know actually know there will be an adjustment later.