Update JPMorgan Chase (JPM)

So how did investors react to getting their hopes and fears confirmed by JPMorgan Chase’s (JPM) first quarter earnings, reported before the market open in New York on April 13?

Not all that well, it turns out. The stock was down nine cents a share the day of the earnings announcement but is down almost 2.3% for the day as I post this on April 14.

The bank, the second largest in the United States by assets, reported earnings of $1.28 a share for the first quarter. That was an increase of 73% from the first quarter of 2010 and 12 cents a share better than Wall Street had projected. Wall Street had been expecting an increase in earnings on lower levels of reserves against bad debt and that’s exactly what it got on the bottom line.

On the other hand, revenue fell 8.5% from the first quarter of 2010 to $25.79 billion. That was slightly above the $25.27 billion in revenue projected by Wall Street analysts. Wall Street had been expecting a drop in revenue on weakness in the investment banking and trading units.

Initially, if I can judge from pre-market open trading, investors seem inclined to buy based on the earnings numbers, figuring, I suspect, that earnings will climb even more once revenue starts to grow again. Read more

Update Citigroup (C)

It’s a cynical, totally transparent ploy—but it’s our ploy. If you own the shares as I do, I’m sure you hope it works.

Citigroup (C) has announced that it will engineer a reverse 1 for 10 stock split and then resume payment dividends at a rate of a penny a share.

The two moves will finally get the shares above $10, the cut off level for some institutional investors. That plus the new dividend—some institutional investors can’t buy shares without dividends—will expand the stock’s potential ownership pool. Shares of Citigroup have been stuck at $5 for months.

Not that anyone is going to be fooled by these moves into thinking that shares of Citigroup are anything but the slowly recovering equity of the U.S bank that got the biggest taxpayer bailout. Read more

Update JPMorgan Chase (JPM)

“We lose money on every sale but make it up on volume” wasn’t quite the motto for investment banks in 2010, but with fees for investment banking deals falling to rock bottom levels, volume is the key to profits in the sector.

And if a bank wants to do volume, it better have the Asia’s emerging financial markets dead in its sights. Three of the five biggest markets for IPOs (initial public offerings) in 2010, for example, were Hong Kong at $57 billion, Shenzhen at $47 billion, and Shanghai at $27 billion.

So who’s going to be the dominant investment-banking player in Asia? Read more

A new Eurozone bank stress test–with even less stress?

Thank goodness they learned their lesson.

Last time bank regulators conducted a stress test of European banks, the tests were derided as too easy and meaningless. That criticism gained a certain credibility when Ireland was forced to bail out its two biggest banks, both of which had passed the summer of 2010 tests.

So what are regulators doing this time? They’re watering down the tests even more.

Hard to believe though it might be, the proposed test will model the effect of a 15% drop in stocks market on bank balance sheets this time—as opposed to a 20% drop in the 2010 model. Read more

China has rewarded some of its biggest banks with a carrot after beating them with a stick. And the financial markets have cheered. The cheering is so loud, in fact, that it is helping the world’s emerging markets put in a potential bottom.

I worry, however, that the real message is that problem loans are shifting from banks to other channels.

China has raised reserve requirements for all its banks to a punitive 19.5% in an effort to slow bank lending, reduce the growth rate of the money supply, and rein in inflation.

But some banks have had to keep even more in reserves because the government has decided they are too loose with their loans. The higher reserve requirements—I’ve heard these banks have had to keep an extra percentage point of reserves with the People’s Bank—were an attempt to get the banks in line with government policy.

And apparently it worked. Read more