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October 14, 2009 United States: BanksGoldman Sachs Global Investment Research 2
Pre-provision overall—upside from the investment bank
Capital markets revenue held up better than expected driving upside in pre-provision earnings. We peg core pre-provision at $12.5-$13 bn this quarter vs. $12 bn last quarter (measured on a GAAP basis, not managed). The strength in the investment bank was onthe trading side (e.g., fixed income trading had its third straight new record quarter) and by region was concentrated in Europe.This continues to support out JPM normalized EPS estimate of $6.50. Several one-time gains seem to have been deployed tofurther write down WaMu.
Exhibit 1:
 
We peg core pre-tax pre-provision earnings in the $12.5-$13.0bn range which is up versus last quarter
JPM pre-tax pre-provision, $ in millions
 
Pre-Provision Earnings 3Q09A2Q09AQoQReported PPOP13,16712,1039%One-time items (pre-tax)
Gains/losses on sec184347FDIC assessment(675)CVA/DVA marks(840)(1,099)Leveraged lending400MasterCard224Treasury gains1,224Improvement in other income615
Core PPOP12,80812,0826%
 
Source: Company data, Goldman Sachs Research.
 
October 14, 2009 United States: BanksGoldman Sachs Global Investment Research 3
Capital and tangible book – benefits from earnings and big swing in securities losses
JPM’s TCE improved 35bps linked quarter to 5.1%. AOCI swung from -$3.5bn to +$0.3bn given improvement in securities prices.This benefits banks that are levered to securities and have a capital overhang such as WFC.
Exhibit 2:
 
TCE improved to 5.08% versus 4.73% last quarter
JPM TCE reconciliation
 
3Q09 2Q09 1Q09 4Q08TCE/TA
Total equity162,253154,766170,194166,884Preferred8,1528,15231,99331,939Goodwill 48,33448,28848,20148,027Purchased credit card relationships1,3421,4311,5281,649All other intangibles3,5203,6513,8213,932Total assets2,041,0092,026,6422,079,1882,175,052TCE 100,90593,24484,65181,337Tangible assets1,987,8131,973,2722,025,6382,121,444
TCE/TA (incl goodwill-related DTL) 5.08% 4.73% 4.18% 3.83%
Goodwill-related DTL2,5272,5352,5022,717TCE 103,43295,77987,15384,054Tangible assets1,990,3401,975,8072,028,1402,124,161
Reported TCE/TA 5.20% 4.85% 4.30% 3.96%
Share outstanding (EOP)3,9393,9243,7583,733
TBVPS (before DTL) $25.6 $23.8 $22.5 $21.8
TBVPS (after DTL)$26.3$24.4$23.2$22.5
 
Source: Company data, Goldman Sachs Research.
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