Ludicrous Earnings of JPM

When JPM announced its first 1Q2012 results in April 2012, the investors were happy. It made good profits for the first quarter!  The CEO Jamie Dimon brushed off the questions about the potential CDS linked losses of its London office - he stated the trade is just a 'tempest in a teapot'!

However, during the conference call yesterday, JPM put the CDS trade losses at $5.8 billion, with the potential to grow another $1.6 billion (totaling $7.4 billion) in a worst-case scenario.

It definitely questions either the (i) integrity of top management at JPM or (ii) managerial capacity. In other words, when the CEO misled the investors in April 2012, either he knew it and had hidden the information from shareholders or he was kept in dark by his staff!

The beauty of the entire episode is that despite the loss, the second quarter results are better and profitable! Where have the losses gone? Well, the company simply restated its first-quarter results to reflect $1.4 billion in related CDS losses. What an accounting!! Let us see who signs the audited accounts of JPM!  

But for the state protection, both JPM and Goldman Sachs would have licked the dust in 2008 crisis. Well after all, there is not much difference in Communism and Capitalism at times. (Karl Marx had predicted in mid 1800s that the capitalist banks will have to be salvaged by the state after narrating incidents more or less in line with the 2008 crisis)

And the stock rallied because the 1Q2012 earnings were marked down to losses so that 2Q2012 can show some profits. If this continues, during the next conference call in Sept 2012, they may re-state 2Q2012 figures downwards to show profits in 3Q2012! and the stock may rally! Just wondering who is fooling who? Does it suggest a massive cover-up & isn’t it obvious that a critical examination required?

Across the Atlantic, another Anglo-Saxon banking model also shows loopholes. Barclays Chairman Marcus Agius and CEO Robert Diamond had resigned in the wake of that firm's LIBOR-rigging scandal. But is amazing that Dimon continues to be the CEO despite scandals after scandals – the power brokers are keeping him up there as he is an expert in mis-leading investors and public?  I like the British way of handling the situation - as they know how to treat erring CEOs or the CEOs that either lacks integrity or capability.

Driving the Indian entrepreneurs abroad!

Thank God, Finally Pranab Mukherjee left the Finance Ministry

When Pranab took the reins of financial affairs of India, the country was growing at about 8%, FIIs and FDIs always considered India as a desirable destination and Indian entrepreneurs were enthusiastic to start new ventures. After all, Chidambaram, who hailed from a reputed business family in South India, conducted the financial affairs in business-like fashion. Of course, India’s foreign currency rate hovered around healthy 1USD= Rs 45/- . Even when international oil prices peaked at US$148/- p/b in July 2008, petrol prices in India was around Rs 50-55/- per litre.

Now, as Pranab leaves the finance ministry, the country’s growth rate has fallen to 5% levels, FIIs and FDIs have dropped to a trickle, currency stability has become a joke, petrol prices increase to the north of Rs.70 p/l (although international crude oil price is around USD 90 p/b only). All of the above is nothing compared to the main achievement ‘driving the Indian entrepreneurs’ abroad!

Recently, I got a few Clients from India, who came to the UAE enquiring how to set up factory in this country. The reason is the changes in Indian income tax. They have informed that the export income which was hitherto tax free in India is now made taxable through MAT (Minimum Alternate Tax). So, the entrepreneurs are planning to shift the production base to business friendly UAE in such a manner that the production for exports will be done in the UAE. Whilst this is good for UAE Economy as the economic multiplier and accelerator works in its favour, Indian economy will suffer in terms of lost jobs, lost government revenue and negative multiplier effect.  Wealth creation in the country will be affected.

This is over and above other myopic policies pursued by the government in tax front that will scare away BPO outsourcing, FII and FDI. We have covered this in an earlier blog see http://www.financialviewsonline.com/2012/04/income-tax-department-is-taking-lessons.html

‘Penny wise and Pound foolish’ seem to the dictum of Indian tax bureaucracy now!