Chillin' out till it needs to be funded
J P Morgan earlier announced results at the height of the executive compensation debate on Friday and noted the following in its results release:
Compensation dropped sharply at J.P. Morgan Chase’s investment bank during the fourth quarter amid controversy ahead of bonus season on Wall Street.
The investment bank reported $549 million in compensation expenses in the latest period, down 80% from the third quarter and 53% from the fourth quarter of 2008.
Compensation was 11% of the division’s net revenue in the latest fourth quarter. That compares to a ratio of 37% in the third and second quarters of 2009 and 40% in the first quarter.
For 2009 as a whole, the compensation ratio was 33%, a big drop from 2008, when the ratio was 62%
J P Morgan is also buying a $4 billion stake from RBS in the RBS Sempra Commodities business which is expected to close anytime next week. Also CFO Mike Cavanagh indicated that the compensation element is likely to be 40% in the future. It sounds reasonable for a people business.
Meanwhile Berkshire Hathaway shareholders have approved the plan to split the B shares 50:1 to get the share ration for the Burlington North Santa Fe railroad acquisition (JAN20)
J P Morgan earned a record $11.7 bn for 2009 and compensation in bonuses was still higher than 2008. the bank earned trading profits while increasing the retail loan loss reserves by $1.9 billion. The 15bps tax will add only hit J P Morgan by $15-20 million. The Retail Loan Loss reserves themselves are $32.5 billion by now
The Andrew Sorkin analysis:
JPMorgan has emerged from the financial crisis with renewed swagger. Unlike several other banking chiefs, Mr. Dimon has emerged with his reputation relatively unscathed. Indeed, he is regarded both on Wall Street and in Washington as a pillar of the industry. On Wednesday on Capitol Hill, during a hearing of the government panel charged with examining the causes of the financial crisis, Mr. Dimon avoided the grilling given to Lloyd C. Blankfein, the head of Goldman Sachs. Mr. Dimon was also the only banker to publicly oppose the administration’s proposed tax on the largest financial companies.
Moreover, J P Morgan appears have taken advantage of the financial crisis to expand its consumer lending business and vault to the top of the investment banking charts. Its investment bank posted strong trading revenue, though well short of the blow-out profits during the first half of the year when the markets were in constant flux.