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gmxBatteringRam (30.12)

Is JPMorgan Insolvent?

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June 26, 2009 – Comments (5) | RELATED TICKERS: JPM

According to yahoo finance, JPMorgan has a book value of ~$140B. According to their latest filings, JPM has 21.2 billion of subprime loans on their balance sheets as assets, 40.2 billion of option arm loans, and 140.3 billion of home equity loans. As we all know, subprime loans are garbage. However, option arm loans are as well read this for proof, and the "equity" that was collateral for those home equity loans has disappeared to a large degree as well. 40.2+21.2+140.3 billion is 201.7 billion which exceeds their entire shareholder equity by a wide margin. Assuming that there are other write-offs coming in other parts of their balance sheet such as commercial real estate, one must seriously ask if JPM is insolvent.

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5 Comments – Post Your Own

#1) On June 26, 2009 at 6:12 PM, Seano67 (25.03) wrote:

Weren't all the big banks including JPM, WFC and BAC 'technically' considered insolvent not too very long ago based on the fact their potential liabilities far, far exceeded their assets? That issue seemed to kind of recede into the background once the TARP money got into the system and with everything else going on, but in my opinion one really has to wonder just what the hell is going on with these banks.

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#2) On June 26, 2009 at 6:57 PM, OneLegged (< 20) wrote:

You are assuming that 100% of those loans are garbage or are about to be garbage.  This is not a reasonable assumption.  In reality probably only somehwere around 99% of those loans are junk.

 We have certainly not heard the end of this saga....

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#3) On June 26, 2009 at 7:02 PM, Seano67 (25.03) wrote:

You are assuming that 100% of those loans are garbage or are about to be garbage.  This is not a reasonable assumption.  In reality probably only somehwere around 99% of those loans are junk.

 

Hahaha. :) Yup. I guess that'd be the 'silver lining'.

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#4) On June 26, 2009 at 7:41 PM, lquadland10 (< 20) wrote:

Oh my blog explains how they are going to come out smeling like a rose. After JP Morgan is part of the FED> They will never go down. That is why we were 2 minutes away from Martial Law for the Tarp bail out money.
lquadland10's CAPS Blog

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2 Let me look in my crystal ball. Where is gold going.

June 26, 2009 – Comments (0) | RELATED TICKERS: GLD , AUY , GS

Every time gold dips I buy. Why you ask. If the Mafia known as the Central Banks back up the money with just 10% gold then gold will go to $5,300 an ounce. If they do it at 20% then gold will go to hair over $10,600 an ounce. If the Mafia Central Bankers go to 50% then Gold goes to around $26,500 an ounce.Drum Roll then for To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to more than $53,000 per ounce. Let's spin the wheel of chance and see which one they will do. 10 20 50 100 or somewhere in between. This is just for the United Stats debt and not the world wide debt. Every time one of the traders say sell the gold I buy. LOL GS is IMHO part of the FED ( I have followed the money) so I follow the Speekers I can semi trust. One would be JIM CRAMER. He says at least 20% of your portfolio should be in gold and silver. So......... along with Fabor Schiff and others then I know we are going to be in for a LULU of a ride.( There is more on how they will do it. )

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#5) On June 26, 2009 at 11:57 PM, rd80 (97.11) wrote:

First, you're assuming 100% of these loans will go into default.  Not even close to reality.

Second, those loan portfolios have already taken quite a few write downs.   

Third, the banks have fairly substantial loan loss reserves and they've been adding to them every quarter.  In nearly all cases, additions to reserves have exceeded loan write downs, so the reserves have been growing.  Those loss reserves aren't included in the numbers you list in your blog entry.

Forth, the bank will have earnings going forward.

Finally, even when a loan goes into default, it still has some value.  The underlying property will be worth something.  Maybe not enough to cover the loan, but more than zero.  Example - suppose someone bought a $500k house with a 100% option arm and negatively amortized the mortgage to the 115% recast limit -outstanding balance is now $575k.  Meanwhile, the house takes a 30% hit to value (now $350k) and another $50k in foreclosure and selling expenses.  The bank's loss on the forclosure is $575K minus the $300K they net on the property or $275K.  Big loss, but not 100%.  A home equity loan can have a value of zero, but even there, you have to go through the balance sheet and check the LTVs to see how much of the loan is unsecured.

I don't know how many more writedowns JPM will need to take.  But I do know you can't assume the entire subprime, option arm and home equity loan portfolios are worth zero.

For all banks, this is a race.  They need earnings to come in strong enough to outpace defaults.  They have some cushion in reserves and their capital, but they need to win the race.

Among the big banks, I think JPM wins the race, WFC wins the race, BAC is going to be close and Citi will join FNM and FRE as a ward of the gov't. 'course, I could be wrong - been known to happen.

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