Randomly Noted

J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees number came from equity and debt underwriting, with the big piece coming from debt – a quarterly record of $971 million for the bank.

Grouped under the investment bank is also trading – and fixed income once again ruled the day. Of the $6.6 billion of revenues from “fixed income/equities,” $5.23 billion came from fixed-income. The bank didn’t offer a break down i.e. how much was from FX trading, for example.

Finally, the investment bank (trading and traditional IB) contributed about 43% of the firms net income ($2.37 billion of a total $5.5 billion).

A quarter where the investment bank didn’t carry the whole day, er quarter, but carried a lot of it.

Hewlett-Packard reported earnings today and while the numbers for the quarter ended January 31 were generally good, investors focused on the tepid outlook. Initial analysis of the results zeroed in on soft PC sales for the recent quarter and the question raised by the company of whether consumers were really opening their wallets. The stock fell 12% in after-hours trading.

There’s another longer-term trend investors should consider when looking at companies that have a lot of exposure to the printer business – will the introduction of tablets like the iPad make printing documents less necessary? Combine that with the green movement and it could spell troubles for companies that make printers.

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Here’s yet another sign that the economy is showing some strength: In it’s first quarter earnings report released a short while ago, Walt Disney Co. showed a couple of examples of being able to raise prices, something that has been nearly unheard of for the past couple of years in just about any business.

In its cable networks division, sales were higher in part on stronger advertising growth. The drivers? More ads but also, higher rates. Again, in the ad-challenged media business, the idea of raising rates over the past few years was certainly unheard of.

And in the parks and resorts division, sales were higher because attendance levels were up. But also because the company raised ticket prices.

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Try these numbers on for size.

At Las Vegas Sands Corp., the company just reported that fourth quarter revenues were up nearly 57% year-over-year. Consolidated EBITDA was up 141.3%. You got to figure that a company with “Las Vegas” in its name knows how to make some money.

But that’s not where it is making its money. It’s in two tiny Islands – one about an hour south of Hong Kong in Macao and the other in a recently opened (last April) giant of a casino in Singapore.

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If other banks report the kind of earnings numbers that came out of J.P. Morgan today, suffice it to say the banking industry is certainly on the road to recovery. Strong earnings and revenue numbers were impressive. But the numbers that really stood out to this blogger were some of those that are the bread and butter of an investment bank (and commercial bank that does investment banking).

Investment banking fees were up in the three major categories: equity underwriting fees of $489 million were up 22% from the prior quarter. Debt underwriting fees of $920 million were up 17% from the prior quarter. And advisory fees of $424 million were up 10% from the prior quarter.

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At first, it’s hard to tell if BMO Financial Group’s $4.1 billion acquisition of Marshall & Ilsley is about a strategic expansion of business in the U.S. or an opportunistic buy of a bank beat up by bad real estate loans.

The answer is it is probably both. Marshall & Ilsley has lost money for nearly two years because its loan portfolio – heavily commercial – soured across the board. But it has a strong deposit footprint in Wisconsin, Minnesota, Florida and Arizona.

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Federal Express reported an 18% decline in second quarter earnings today. At first blush, that might appear to indicate that maybe the economy isn’t on the road to recovery after all. That’s because FedEx, and fellow shipping company UPS, are looked at as proxies for the economy. When businesses are building more products, they need to ship in tools that help them do that. And when consumers are opening their wallets, they buy products that are often shipped to them.

But read above the bottom line numbers at FedEx and you see some positive news.

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A look at Morgan Stanley’s earnings report today is yet another example of how the not-very-sexy businesses can be good ones to be in. When people think of Wall Street, they think of investment bankers and traders. And often we hear about the larger-than-life deals and money these folks make. But the banking and trading business can be very volatile, whereas the wealth management business may not grow as steadily but is, well pretty steady.

At Morgan Stanley, the firm reported wealth management revenues in the most recent quarter were $3.1 billion. The quarter before (this year’s 2Q): $3 billion. And the year-ago 3Q was $3.0 billion.

Institutional securities had $2.8 billion of revenues in the most recent quarter. It was $4.5 billion last quarter and $5.0 billion the year before.  In a sense, Morgan has created a hedge against the volatility brought on by sales and trading by being in the wealth business.

General Electric reported earlier today that its earnings and sales were a little softer than everyone expected them to be although orders for new equipment and services grew in the third-quarter – a sign business is picking up.

But one of the clear challenged that remains for GE is its real estate portfolio in its GE Capital unit. The company reported today that its real estate business lost $405 million. Now, that’s better than the $538 million loss in the year-ago quarter, but it shows that the weight of bad loans continues to drag down GE Capital.

The company also noted that it has $1.4 billion in non-performing loans, so, more losses are likely. It wrote off $222 million of losses from that real estate loan portfolio.

J.P. Morgan reported strong earnings this quarter yet again. But there were interesting trends worth keeping an eye on for the quarters ahead. For starters, in its presentation to investors after it released earnings, the bank addressed its home lending portfolio. “It is not clear when we will see delinquencies improve.” That’s perhaps a little bit of a surprising statement because the trend line in general has been a stabalizing one in terms of delinquencies.

Looking ahead, J.P. Morgan said its loss for the next quarter in home equity loans could be close to $1 billion (in the third-quarter just reported, it had a charge off of $730 million). In prime mortgages, it said the next quarter may show losses of $400 million (3Q charge offs were $265 million). And it said it could see losses of $400 million in subprime (it had a charge off of $206 million in the 3Q).

In general, the credit picture has gotten better. But the point J.P. Morgan is making here is that problem loans haven’t gone away. One bright sign is the trend in credit card delinquencies, which appear to be improving.

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