The bank dropped a bombshell on investors upon disclosing it had amassed a significant credit-derivative loss. Initially, the loss was said to be approximately $2 billion, but then the bank said the poor trade had actually reached levels of almost $6 billion this year with a chance of possibly reaching $7.5 billion, when it is all said and done.
This reminds me of a quote from Warren Buffett, who once said, "Derivatives are financial weapons of mass destruction." He was right.
It's hard to believe it's been over four months since this announcement. However, when looking at the overall health of the financial sector and what has transpired for most of the year, with names including Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS), the only theme that I can come up with is that so far it has been the year of "banking dangerously."I say this because aside from the fact that many of the names have (one way or another) shot themselves in the foot, the European debt situation continues to drag on several banks indirectly impacted by the financial concerns abroad. Remarkably, it doesn't seem that investors care a whole lot. I have to confess, I don't blame them. The initial news hit the markets pretty hard: $2 billion is still $2 billion regardless of the company's size or assets. On the other hand, Wall Street realized something -- we've been down this road before. After all, it was not too long ago that each of the largest major banks needed a government bailout for their part in the credit crisis. However, nothing says "I'm sorry" better than a solid quarter with better than expected earnings. This was exactly what JPMorgan delivered. In its most recent quarter, the bank reported net income of $5 billion, or $1.21 earnings per share. It produced solid results in its retail banking as well as Treasury services. What's more, it generated lower-than-expected losses on loans. It showed considerable improvements in key areas such as mortgage loan origination, which was up 29% annually and 14% sequentially.
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