MarketWatch: Whoops, there goes our profit

Whoops, there goes our profit
Commentary: Merrill and J.P. Morgan hint at the scale of coming damage
By David Weidner, MarketWatch


NEW YORK (MarketWatch) -- Big deal: the other day, J.P. Morgan Chase & Co. filed its quarterly report with the Securities and Exchange Commission.

Nothing unusual in that. The bank had already done the dirty work by announcing its second-quarter results on July 17. And in that report, everything was looking up. J.P. Morgan had a $2 billion profit to show. The only apparent downer was the $500 million in charges taken for the acquisition of Bear Stearns Cos.

So Monday's filing really wasn't much more than making it all official. Generally, 10Q's are just the numbers with the legal stuff thrown in. Sure, between the time when results are announced and when the filing is made, things can change. It happens, but when it does, it's generally a surprise.

You probably know by now that J.P. Morgan's 10Q did include one of those surprises. Slipped in on page 10 of the report was a disclosure that its investment banking arm held some collateralized debt that had lost about $1.5 billion in value since the end of the quarter.

J.P. Morgan tells me that they weren't trying to hide anything. They say it was at the top of the filing and those filings are highly scrutinized. Maybe so. On the other hand, they didn't give this the fanfare the second-quarter profit received: press releases and conference calls.

In other words, it took about a month, maybe less, for J.P. Morgan to lose about 75% of its second quarter profit.

It doesn't get much worse, or does it? J.P. Morgan, a bank many -- including me -- thought had weathered the banking crisis and moved on, said it could get worse and may be worse already because the investment bank still had a $19.5 billion exposure in Alt-A mortgages, $1.9 billion in subprime mortgage exposure and an $11.6 billion exposure in commercial mortgage-backed securities.

For these securities, though hedged, "the trading conditions have substantially deteriorated," the bank said. .......(more)

The complete piece is at: http://www.marketwatch.com/news/story/jp-morgan-disappearing-profit/story.aspx?guid=%7BA1F91885%2DA9A0%2D493C%2D98A1%2D96331E81652D%7D

When the investigations and indictments by Cuomo will be announced.