J.P. Morgan reported stronger than expected earnings today ($4.8 billion) in part because its bad loan portfolio wasn’t performing quite as badly as before. The chart to the left demonstrates how deliquency trends for J.P. in the subprime mortgage area have begun to not only level off but decline. The numbers remain high, but are at least headed in a better direction. It saw similar improvements in its home equity line portfolio of loans as well. Surprisingly, where there wasn’t a lot of improvement was in the prime mortgage portfolio (see chart below). Some other interesting trends in the earnings report worth noting: the bank continues hiring and is increasing staff. At the end of this quarter, it had 232,939 employees, up a little more than 6,000 from the 1st quarter of the year. At the end of last year’s second quarter, the bank had 220,255 employees on the payroll. Equity underwriting fees were down 68% and debt underwriting fees were down 6%.
Archive for July 15th, 2010
Corporate Governance, Derivatives, Securities & Exchange Commission, Wall Street, Washington / Comments Off
Like settlements should, the one just announced between the Securities and Exchange Commission and Goldman Sachs & Co. seems to have significant ‘wins’ for both sides.
For Goldman, it puts an open investigation, that featured a high-profile Congressional hearing, behind it. That’s at least for the civil charge brought by the SEC. It was a lingering public relations headache that was part of a larger negative image as the big bad investment bank that Goldman’s been fighting in the aftermath of the credit crisis.
For the watchdog SEC, there’s the acknowledgment by Goldman of incomplete marketing materials (the firm neither admitted nor denied the allegations), along with a payment of $550 million, some of which will go to the investors who lost on teh deal.
The SEC’s director of enforcement, Robert Khuzami, called it the “largest penalty ever assessed against a financial services firm in the history of the SEC.”
Here’s a simplistic description of the circumstances. Goldman created a synthetic mortgage security. The mortgages that went into the security, thus helping determine its creditworthiness, were selected in some part by a hedge fund that intended to go short the security, benefiting if it went bad.
Goldman didn’t tell the buyers.
On one level it seems simple. If you are a buyer you want to know. But the legalisms are different. And Goldman vehemently denied wrongdoing, citing the sophistication of the buyers and its role as market maker.
Curious that while settling with Goldman, the SEC said its litigation continues against Fabrice Tourre, the vice president of Goldman at the center of the controversy. It shows that in many cases of official investigations, at some point the interests of the corporation and the individual diverge.
Both sides probably made the best deal they could, given the political and legal context.