Wednesday, March 13, 2013

Joshua Rosner: JP Morgan has taken a page out of Fannie Mae handbook

As reported by Bloomberg, Graham Fisher's Joshua Rosner is out with an analysis of JP Morgan in which he observes:
“JPM appears to have taken a page out of the Fannie Mae playbook,” Rosner wrote, referring to the New York-based company by its stock ticker. 
Fannie Mae “perfected the art of cozying up to elected officials, dominating trade associations, employing political heavyweights and their former staffers and creating the image of American flag-waving, apple-pie-eating, good corporate citizen.”...
Mr. Rosner has used slightly different imagery to capture what Jeff Connaughton call the Blob (aka, politicians, regulators and Wall Street's lobbyists).
JPMorgan has spent at least $8.5 billion, or about 12 percent of net income, to settle regulatory and legal disputes from 2009 through 2012, Rosner estimated. 
“We could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage-related regulatory actions or consent orders,” Rosner wrote. 
“The firm’s pride in a disputable ‘fortress balance sheet’ -- which underestimates their off-balance sheet risks -- appears to have given investors false comfort.”
Please re-read the highlighted text as Mr. Rosner has just called into question whether JP Morgan's, or any bank's financial statements, fairly represents their current financial condition.

From Barry Ritholtz's blog, the Big Picture, we learn that Mr. Rosner had more to say on this issue in the executive summary to his report.
JPM’s ability to retain its reputation, its political power and support of investors in the face of financials that lack the details necessary for a proper analysis are reminiscent of another too-big-to-fail institution: Fannie Mae.
Please re-read the highlighted text as Mr. Rosner confirms the Bank of England's Andrew Haldane's observation that banks are 'black boxes' when Mr. Rosner says JP Morgan's financials lack the details necessary for a proper analysis.

Regular readers know what those necessary details are for a proper analysis.  Those details are the bank's current global asset, liability and off-balance sheet exposure details that it would disclose if it provided ultra transparency.

A bank that could stand on its own two feet and truly had a fortress balance sheet would make it a point to provide ultra transparency.  After all, it has nothing to hide.

A bank that doesn't provide ultra transparency is a bank that is waving a huge red flag and announcing to the world that it has something to hide.  Mr. Rosner's report is an attempt to figure out what JP Morgan is hiding besides its engagement in bad banker behavior.

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