77% of JP Morgan’s Net Income Comes from Government Subsidies

[Jetdawgg]

JP Morgan’s credit rating would be much lower without government backing.

As Bloomberg noted last week:

JPMorgan benefited from the assumption that there’s a “very high likelihood” the U.S. government would back the bank’s bondholders and creditors if it defaulted on its debt, according to the statement. Without the implied federal backing, JPMorgan’s long-term deposit rating would have been three levels lower and its senior debt would have dropped two more steps, Moody’s said.
And as the editors of Bloomberg pointed out a couple of weeks ago:

JPMorgan receives a government subsidy worth about $14 billion a year, according to research published by the International Monetary Fundand our own analysis of bank balance sheets. The money helps the bank pay big salaries and bonuses. More important, it distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy.

***

With each new banking crisis, the value of the implicit subsidy grows. In a recent paper, two economists — Kenichi Ueda of the IMF and Beatrice Weder Di Mauro of the University of Mainz — estimated that as of 2009 the expectation of government support was shaving about 0.8 percentage point off large banks’ borrowing costs. That’s up from 0.6 percentage point in 2007, before the financial crisis prompted a global round of bank bailouts.

To estimate the dollar value of the subsidy in the U.S., we multiplied it by the debt and deposits of 18 of the country’s largest banks, including JPMorgan, Bank of America Corp. and Citigroup Inc. The result: about $76 billion a year. The number is roughly equivalent to the banks’ total profits over the past 12 months, or more than the federal government spends every year on education.

JPMorgan’s share of the subsidy is $14 billion a year, or about 77 percent of its net income for the past four quarters. In other words, U.S. taxpayers helped foot the bill for the multibillion-dollar trading loss that is the focus of today’s hearing. They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012.

Way to suck at the government teat, Mr. self-proclaimed free market champion.

http://www.zerohedge.com/contributed...ment-subsidies

[chiefst2000]

Originally Posted by Jetdawgg

http://www.zerohedge.com/contributed...ment-subsidies

So the subsidy is actually the implication that if they default the government would back them up? Its not actual money? And they chose JPM, one of the few banks that weathered the debacle without requiring a bailout of taking government money? Odd choice. They should have went with Citibank or B of A as the example.

[cr726]

Originally Posted by chiefst2000

So the subsidy is actually the implication that if they default the government would back them up? Its not actual money? And they chose JPM, one of the few banks that weathered the debacle without requiring a bailout of taking government money? Odd choice. They should have went with Citibank or B of A as the example.

They received 25 billion from the bailout.

http://www.nytimes.com/2008/10/25/bu...in&oref=slogin

[Winstonbiggs]

Originally Posted by cr726

They received 25 billion from the bailout.

http://www.nytimes.com/2008/10/25/bu...in&oref=slogin

Very complicated deal. JP Morgan didn't need bailout funds Paulson wanted them to take them. They also were aided by the government in taking over assetts of Bear Sterns and Washington Mutual. Bear came with huge potential liabilities.

[cr726]

Originally Posted by Winstonbiggs

Very complicated deal. JP Morgan didn't need bailout funds Paulson wanted them to take them. They also were aided by the government in taking over assetts of Bear Sterns and Washington Mutual. Bear came with huge potential liabilities.

I agree, but it doesn't make what Chief stated correct.

[chiefst2000]

Originally Posted by cr726

I agree, but it doesn't make what Chief stated correct.

Paulson forced them to take the money. They didn't need it. Paulson didn't want a stigma attached to the tarp money so even large banks that didn't need the money were forced to take it. They paid it back quickly and in full. JPM was the most well managed and unscathed of all of the large banks coming out of the sup prime debacle. This article and its premise is moronic because they chose the wrong bank to use in the example.