Accounting fraud allows JPMorgan to post phantom profit for Q1 2011

Nothing new under the sun. Until mark-to-market is reinstated under GAAP by the FASB committee, banks will keep on hiding losses on their balance sheets and post phantom profits. Today was the case for JPMorgan, which Q1 were dismal if you know how to read official statements and know basic accounting.

Obviously, market participants do not do that. They just focus on the headline numbers, the same way that focused on the rating agencies ratings when investing in CDOs and CDO-squared:

April 13 (Bloomberg) — JPMorgan Chase & Co., the second- biggest U.S. bank by assets, said profit rose 67 percent to a second straight record as provisions for bad mortgages and credit-card loans tumbled.

First-quarter net income climbed to $5.56 billion, or $1.28 a share, from $3.33 billion, or 74 cents, in the same period a year earlier and from $4.83 billion, or $1.12, in the fourth quarter, the New York-based company said today in a statement. The results beat the average per-share estimate for adjusted earnings of $1.15 by 26 analysts surveyed by Bloomberg.

Provisions for credit losses dropped 83 percent to $1.17 billion as defaults and late payments declined. JPMorgan, led by Chief Executive Officer Jamie Dimon, posted a record $17.4 billion in earnings last year, in part by releasing about $7 billion of reserves against bad loans back into income as the U.S. economy improved. Dimon, 55, has said he doesn’t consider reserve releases as “quality” earnings because they don’t represent growth in the bank’s businesses.

“This is setting the bar very high for the others, and this major beat of the estimate is going to be tough for others to follow,” Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York, said in an interview with Tom Keene on Bloomberg Radio. [...]

April 13 (RTTNEws) — The company said its provision for credit losses for the second quarter was $3.36 billion, down 65% from prior-year's $9.70 billion, reflecting reduction in the allowance for credit losses as a result of improved delinquency trends and reduced net charge-offs.

For some reason, the numbers do not match from the two reports. But whichever is the right one, there's about $6 billion of phantom profits on loan loss reserves, on a net income of about $5.5 billion. That would make for an operating loss if reserves were not changed.

In addition, I would like to pass my nerves on Michael Holland, who seems to be a complete fool and incompetent. That wouldn't surprise anyone anyway...