JPMorgan Chase is beginning to realize that some of the bargain basement purchases it made last year were cheap for a reason.
To be sure, JPMorgan may have described its quarterly results this morning as “poor,” but at least it turned a $702 million profit at a time when its peers are struggling mightily. Much of that profit stemmed from $1.1 billion in accounting benefits related to the firm’s acquisition of Washington Mutual.
But Jamie Dimon, JPMorgan’s mostly feted chief executive, explained Thursday morning that the bank lost several billion dollars more than it would have in the quarter had it not been for its purchase of Bear Stearns. And the WaMu deal may end up costing JPMorgan billions down the line.
JPMorgan was the most acquisitive of the major banks last year, snapping up both a major investment bank in Bear and a big thrift in WaMu. Mr. Dimon, above, was hailed as the new “King of Wall Street” for snapping up the two struggling banks on the cheap, (though he took heat for picking up Bear Stearns for too little money, eventually raising the deal’s price).
But there was a reason that Bear Stearns and WaMu were both priced so low, it turns out: they both made a lot of bad business decisions that would eventually come to roost once the economy turned sour.
In the case of Bear Stearns, Mr. Dimon admitted that the deal had cost the firm a lot of money, even though it was hard to separate what was JPMorgan’s responsibility and what it inherited from Bear.
“I hesitate to say this a little bit,” Mr. Dimon said on the analyst conference call referring to Bear’s impact on its earnings. “We probably lost several billion dollars more than we would have in the year had we not done Bear.”
As for WaMu, JPMorgan may have to pony up more a lot more money than it had originally expected in order to cover all the bad loans the troubled thrift wrote during the go-go years of the credit bubble.
JPMorgan set aside $32.5 billion to cover WaMu’s bad loans when it bought the bank back in September. But that was based on the assumption that housing prices were going to fall 25 percent from their peak back in 2007. Based on new assumptions that show a 31 percent decline, the loan losses could reach as high as $36 billion, $3.5 billion more than what JPMorgan had accounted for.
That could mean further write-downs in the years to come.
After this sour news, Meredith A. Whitney, the banking analyst for Oppenheimer, asked Mr. Dimon if he would consider making another acquisition to continue building the bank’s capital base.
“I would never say never,” Mr. Dimon sighed, “but obviously we are busy with Bear Stearns and WaMu … the hurdle rate would have to be really high to do an acquisition.”
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The Price of JPMorgan’s Deal-Making
15 January 2009
JPMorgan Chase is beginning to realize that some of the bargain basement purchases it made last year were cheap for a reason.
To be sure, JPMorgan may have described its quarterly results this morning as “poor,” but at least it turned a $702 million profit at a time when its peers are struggling mightily. Much of that profit stemmed from $1.1 billion in accounting benefits related to the firm’s acquisition of Washington Mutual.
But Jamie Dimon, JPMorgan’s mostly feted chief executive, explained Thursday morning that the bank lost several billion dollars more than it would have in the quarter had it not been for its purchase of Bear Stearns. And the WaMu deal may end up costing JPMorgan billions down the line.
JPMorgan was the most acquisitive of the major banks last year, snapping up both a major investment bank in Bear and a big thrift in WaMu. Mr. Dimon, above, was hailed as the new “King of Wall Street” for snapping up the two struggling banks on the cheap, (though he took heat for picking up Bear Stearns for too little money, eventually raising the deal’s price).
But there was a reason that Bear Stearns and WaMu were both priced so low, it turns out: they both made a lot of bad business decisions that would eventually come to roost once the economy turned sour.
In the case of Bear Stearns, Mr. Dimon admitted that the deal had cost the firm a lot of money, even though it was hard to separate what was JPMorgan’s responsibility and what it inherited from Bear.
“I hesitate to say this a little bit,” Mr. Dimon said on the analyst conference call referring to Bear’s impact on its earnings. “We probably lost several billion dollars more than we would have in the year had we not done Bear.”
As for WaMu, JPMorgan may have to pony up more a lot more money than it had originally expected in order to cover all the bad loans the troubled thrift wrote during the go-go years of the credit bubble.
JPMorgan set aside $32.5 billion to cover WaMu’s bad loans when it bought the bank back in September. But that was based on the assumption that housing prices were going to fall 25 percent from their peak back in 2007. Based on new assumptions that show a 31 percent decline, the loan losses could reach as high as $36 billion, $3.5 billion more than what JPMorgan had accounted for.
That could mean further write-downs in the years to come.
After this sour news, Meredith A. Whitney, the banking analyst for Oppenheimer, asked Mr. Dimon if he would consider making another acquisition to continue building the bank’s capital base.
“I would never say never,” Mr. Dimon sighed, “but obviously we are busy with Bear Stearns and WaMu … the hurdle rate would have to be really high to do an acquisition.”
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