Trader Talk

JPM's New Worries And China's New Hope


Credit issues weigh on JP Morgan . The bank is trading down a bit this morning despite beating on the top and bottom line: $0.28 vs. $0.04 expected, which includes a TARP payment of $0.27 and an FDIC special assessment fee of $0.10; and revenues of $27 billion in revenues topped estimates of $26 billion).

Like Goldman , the beat appears to be largely from fixed income. Analysts noted that fixed income revenue was almost $5 billion, twice the Q2 08 level, the gains came not just from trading fixed income but also the absence of markdowns related to leveraged lending and mortgage-related exposures.

Still, credit concerns are an issue. Total Non-Performing Loans (NPLs) were up 30 percent quarter over quarter. Consumer NPLs were up 14 percent, but Commercial NPLs were up 63 percent (!). Net charge-offs (debts the company believes it will never collect) continue to tick up for Home Equity, Prime Mortgages, and Credit Cards from the first to the second quarter.

The good news is the company has increased its provisions for credit losses.

In an update, the company said they expect charge-offs on credit cards could approach 10 percent in the third quarter, from 8.97 percent in the second.

Jamie Dimon also noted that commercial real estate was likely to worsen.


1) at least their stimulus is working: China posted surprisingly strong GDP growth of 7.9 percent int he second quarter, above expectations of 7.5 percent, and well above 6.1 percent in the first quarter. The Shanghai Index hit a 52-week high on an intraday basis today, but closed fractionally lower.

Companies' poor outlooks are continuing to overshadow earnings surprises this morning as companies remain very cautious in their near-term outlook.

2) Marriott is down 6 percent pre-open as it beat estimates, but issued disappointing guidance. The hotel saw Q2 earnings plunge 76 percent from a year ago amid lower occupancy (down 21 percent) and declining hotel rates (down 11 percent). Revenue per available room (REVPAR) fell 26 percent, but the company offset that drop by also reducing costs by 26 percent.

Weakness is expected to continue in the current quarter, with REVPAR declining 20-23 percent and earnings expected between 9 cents and 14 cents, well below the Street's forecast of 20 cents.

3) Despite an earnings beat, Nokia shares are down 10 percent in pre-market trading as it lowered market share and margin guidance. The world's biggest handset maker now sees its market share remaining flat this year, down from prior hopes of growing its market share. Additionally, second half margin expectations have been cut to be roughly inline with margins from the first half of the year. The company also reiterated its forecast for a 10 percent drop in industry volumes this year.

4) Fertilizer producer and potassium miner Mosaic is up 10 percent after the Brazilian newspaper Estado reported that mining giant Vale may be considering a bid for the company as it looks to expand its potassium assets. The report also suggests that fellow miner BHP Billiton may be interested in making a competing bid for Mosiac.

5) Shares of commercial lender CIT Group are expected to plunge once trading resumes today. Shares were halted before the close yesterday and ahead of the company's announcement that talks with the government collapsed. The company warned that "there is no appreciable likelihood" of the government providing any help in resolving its current liquidity crisis. Bankruptcy is now an option.



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