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Savings Experiment: Snow RemovalJP Morgan (NYSE:JPM) may be raising cash it does not need to prepare its balance sheet for more losses. The bank reported a $2.37 billion profit. That was down by half from a year ago, but was still an impressive number. The firm did set aside $4.4 billion for loan losses and took about $2.6 billion of write-downs tied to mortgages.
According to Reuters JPM "results calmed investors, who had hoped the bank would deal with the credit crisis better than some others."
So, why raise the capital? The answer may be in news that Wilbur Ross, billionaire specialist in Chapter 11 investing, is putting together cash from sovereign funds to invest in weak US financial stocks. According to Bloomberg "Ross will talk with Gulf investors in Abu Dhabi next week about 100 to 200 so-called thrift banks."
Now that JP Morgan has acquired Bear Stearns (NYSE:BSC), it is almost a sure bet that JPM CEO James Dimon will go looking for other bargains. He learned the practice under former boss Sandy Weill and his company is the product of a large merger with Bank One.
JP Morgan's likely desire to buy smaller financial firms may be a sign that stocks in banks and brokerages are bottoming. Dimon wants a piece of that. Why should Ross have all the fun?
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
4-17-2008 @ 4:27AM
Monty Python 1975 said...
JP Morgan Chase: That's where I want my money.
4-17-2008 @ 8:37AM
B. Harrison said...
The financial institutions's investments are so obscurely interlocked with bad investments that the individual investor can't be sure where all of this is going to shake out to be.
JP Morgan "looks okay" for the moment; but who can be sure about what they are taking on, even at highly discounted prices (to the disadvantage of the other stockholders). How long will it take for all of the corporae disclosures to be made? No investor can be confident of what is going to happen until a level playing ground is provided for all investors, can it?
The construction industry, esp. the condominium segment of the market, is still a big "unknown". All of the condominiums sold within the last five to seven years are going to be "upside down"; and it has become almost impossible to sell the outstanding inventories for the costs to construct them . . . that is a MAJOR PROBLEM. Will all of these projects have to go through bankruptcy to readjust the prcing . . . and that displaces the losses onto sub contractors, vendors, and manufacturers; and results in escalated unemployment. This is a crucial segment of the market that will not be easily resolved.
It is going to take a minimum of 18 mos, and more like three years or more for this market to level out.
At this point, most of the conso associations are incurring major defaults in unit owner assessment payments, which is exacerbating the financial operation of the Associations . . . both for new and oler condo Associations. It will take minimally 18 months to address these problems and will result in additional foreclosures, bankruptcies, etc.
4-17-2008 @ 8:51AM
B. Harrison said...
JP Morgan raising additional cash:
1. Puts them in a better fiancial position to take advantage of additional "discounted purchases" of other companies (esp. if they can "cherry pic" the assessts.)
2. Will dilute any unanticipated losses that they might incur.
So, what is the return to investors for these risky investments? Is it worthwhile at this point?