Friday, April 12, 2013

JPMorgan Chase 1Q 2013 Reported EPS Up 34%, But Very Poor Quality

JPMorgan Chase reported 1Q 2013 Earnings Per Share (EPS) of $1.59, up 34% from the $1.19 earned in the 1Q 2012.

JPMorgan discloses in its earnings releases what it calls Significant Items Included in its Earnings.  When I back away from EPS all of these Significant Items, I get Adjusted EPS of $1.41 in the 1Q 2013, up only 1% from the $1.39 of Adjusted EPS of the 1Q 2012.

Included as one of these Significant Items in both the 1Q 2013 and the 1Q 2012 is Reduced Loan Loss Reserves Related to Mortgage and Credit Cards.  Since JPMorgan Chase's Total Provision for Credit Losses only changed by $109 mil from the 1Q 2012 to the 1Q 2013, I don't think it makes any sense that it should be included as one of the Significant Items.  When I exclude it as a Significant Item, I get a more meaningful Adjusted EPS decline of 5% in the 1Q 2013 as compared with the 1Q 2012.

Below here is the EPS, Adjusted EPS, and the Related Significant Items included in EPS for JPMorgan Chase for both the 1Q 2013 and the 1Q 2012:


1Q 2013 1Q 2012 Change

EPS as Reported $1.59 $1.19 34%

Significant Items Included in Above EPS Per JPMorgan Chase Disclosure:

1Q 2012 Restatement for Derivative Losses on Synthetic Credit Portfolio
Additional Litigation Reserves
Debit Valuation Adjustment Loss from Tightening of Credit Spreads
Washington Mutual Bankruptcy Settlement Gain
Reduced Loan Loss Reserves Related to Mortgage and Credit Cards ($0.18) ($0.28)

Adjusted EPS $1.41 $1.39 1%

Adjusted EPS excluding Reduced Loan Loss Reserves Item Included Above $1.59 $1.67 -5%

Pundits who are trying to pin the massive stock market increase so far in 2013 on the operating results of a Big Financial Firm like JPMorgan Chase are clearly off target.