After rolling back a deci­sion to allow Huawei-​made com­po­nents to be used in non-​critical parts of the UK’s 5G infra­strucutre, the UK gov­ern­ment has just announced a land­mark deci­sion to block Huawei parts from being used through­out its 5G infra­struc­ture in a major win for the Trump Admin­is­tra­tion as it bids to exclude Huawei from lucra­tive west­ern mar­kets, due to national secu­rity concerns.

Start­ing Dec. 31, Huawei will be barred from pro­vid­ing new equip­ment to British networks.

As Bloomberg con­cludes rather omi­nously, the deci­sion to strip out Huawei’s kit from British net­works rep­re­sents a major rever­sal by John­son, and threat­ens to fuel a grow­ing row between the U.K. and China at a highly sen­si­tive time. China has warned John­son will face “con­se­quences” if the U.K. treats it as a “hos­tile partner.”

Shortly before news of the deci­sion broke, a top CCP mouth­piece warned that an open, fair and non-​discriminatory envi­ron­ment will be a major “lit­mus test” for Chi­nese invest­ment in the British econ­omy post-​Brexit, said Chi­nese For­eign Min­istry spokesman Zhao Lijian.

JPM has offi­cially launched Q2 earn­ings sea­son, with what was essen­tially a story of an impres­sive Income State­ment vs a rather ugly Bal­ance sheet.

Look­ing at the income state­ment first, JPM reported Q2 rev­enue of $33.8BN, up $4.3BN Y/​Y, and smash­ing expec­ta­tions of $30.3BN, largely as a result of a surge in trad­ing and IBank­ing rev­enue,off­set by a higher than expected credit loss pro­vi­sion. Indeed, despite the surge in rev­enue, net Inter­est income was actu­ally down $0.6BN Y/​Y to $14 bil­lion as the bank’s net inter­est mar­gin con­tin­ues to be depressed. Still, the bank reported EPS of $1.38, which while down $1.44 from the $2.88 a year ago, was also stronger than the $1.01 expected.Why the nearly $5 bil­lion drop in Net Income? Because JPM con­tin­ued to aggres­sively build loan loss reserves ahead of what is shap­ing up to be the worst finan­cial cri­sis since Lehman (more below).

How did JPM man­age such an impres­sive Q2 rev­enue recov­ery? Sim­ple: the refi flood started by covid, and with the explicit guar­an­tee of Pow­ell, allowed JPM to unleashed a record amount of debt and equity issuance, even as M&A slowed sharply in the quarter.

Mean­while, despite the slow­down in debt and credit card sales vol­umes, these have almost nor­mal­ized, while mort­gage and auto appli­ca­tions have soared in recent weeks to take advan­tage of near record low inter­est rates. Of note: in June, JPMor­gan recorded the high­est auto loan orig­i­na­tion vol­ume in its his­tory in June, orig­i­nat­ing a record $3.7 bil­lion of auto loans.

JPM also tried to deflect crit­i­cism for its dis­ap­point­ing par­tic­i­pa­tion in the PPP Pro­gram, claim­ing that “since March 13^th, we’ve pro­vided assis­tance to nearly 1.7mm accounts, rep­re­sent­ing $79B2 of bal­ances” and adding that “a large share of cus­tomers con­tinue to pay us through the relief period”

Yet for all the pretty charts and slides, the only one that really mat­ters was the bank’s cor­po­rate and invest­ment bank, where JPM reported a stag­ger­ing 85% increase in net income to $5.5BN, while rev­enue exploded a whop­ping 66% higher to a record $16.4 BN.

What was behind this surge:

• Mar­kets rev­enue of $9.7B, up 79% YoY,of which Fixed Income Mar­kets rev­enue of $7.3B, up 99% YoY, while Equity Mar­kets rev­enue of $2.4B, up 38%,pre­dom­i­nantly dri­ven by strong client activ­ity in deriv­a­tives and Cash Equities
• Invest­ment Bank­ing rev­enue of $3.4B, up 91% YoYwith IB fees up 54%, reflect­ing higher fees across prod­ucts (the num­ber included $659mm of markups on HFS posi­tions in the bridge book).
• While far less rel­e­vant, Q2 bank­ing expense were $6.8B, up 19% YoY “dri­ven by higher revenue-​related expense”

Putting the fixed income trad­ing rev­enue in con­text, it rose to a record $7.34BN, as the Fed back­stoped all debt cap­i­tal mar­kets, pro­vid­ing an effec­tive sub­sidy to JPM. But we are about to lis­ten to Jamie Dimon lec­ture us again how JPM did not need the Fed again, like in 2009

What we also found espe­cially remark­able, was the surge in JPM VaR from $44 a year ago to a record $127 in Q2.

So all of that was the good news. What was not so good? Well, as we warned last quar­ter, JPM did not pro­vi­sion nearly enough in poten­tial credit losses, and sure enough moments ago we got con­fir­ma­tion of that, when the bank reported $10.5BN in credit loss pro­vi­sions (con­sist­ing of $1.6BN in net charge offs and $8.9BN in reserve build), a sharp increase from the $8.3 bil­lion in Q1.

A detailed break­down of Q2 reserve builds is below:

This meant that Net Income for the bank’s Con­sumer and Com­mu­nity bank tum­bled by $4.3BN, largely off­set­ting the gains in trad­ing. Indeed, as JPM reports, credit costs in its con­sumer bank divi­sion soared $4.7BN Y/​Y to $5.8B, reflect­ing reserve builds in:

• Card: $2.9B
• Home Lend­ing: $900mm
• CBB: $490mm
• Auto: $310mm

Some more unpleas­ant num­bers: aver­age loans were down 7 YoY, while aver­age deposits soared 20%.This is money that should be in the mar­ket — at least accord­ing to the Fed — but instead it is col­lect­ing elec­tronic dust in JPM’s dig­i­tal vault.

Over­all lend­ing was up 2% year-​on-​year, to about $979 bil­lion, and was as a result of a 9% jump in whole­sale loans to about $528 bil­lion, even as total con­sumer loans fell 2% to about $309 bil­lion, while credit card loans dropped 10% to about $142 bil­lion as con­sumers paid back loans aggressively.

That said, there was a sil­ver lin­ing in that JPMorgan’s rev­enue from home mort­gage lend­ing jumped 51% to $1.7 bil­lion thanks to higher mar­gins as the gap between the 10Y TSY and the 30Y mort­gage is near all time wides.

Despite the impres­sive top-​line beat, Dimon sounded rather cau­tious in his pre­pared comments:

“Despite some recent pos­i­tive macro­eco­nomic data and sig­nif­i­cant, deci­sive gov­ern­ment action, we still face much uncer­tainty regard­ing the future path of the econ­omy. How­ever, we are pre­pared for all even­tu­al­i­ties as our fortress bal­ance sheet allows us to remain a port in the storm.”

That said, should the worst case sce­nario come to pass, Dimon is con­fi­dent it has enough cap­i­tal to off­set even more losses:

“We ended the quar­ter with mas­sive loss-​absorbing capac­ity — over $34 bil­lion of credit reserves and total liq­uid­ity resources of $1.5 tril­lion, on top of $191 bil­lion of CET1 cap­i­tal, with sig­nif­i­cant earn­ings power that would allow us to absorb even more credit reserves if needed. This is why we can con­tinue to serve all of our stake­hold­ers and to pay our div­i­dend — unless the eco­nomic sit­u­a­tion dete­ri­o­rates mate­ri­ally and significantly.”

And in a world where virtue sig­nal­ing is now expected, JPMor­gan didn’t dis­ap­point, with Dimona hilar­i­ously claim­ing that his bank — which was dragged kick­ing and scream­ing into the PPP pro­gram — help­ing to drive “poli­cies and pro­grams for the ben­e­fit of all society.”

“We are fully com­mit­ted to doing our part both in pro­mot­ing the safety of our employ­ees and cus­tomers and help­ing the economies of the world recover from the impact of the ongo­ing COVID-​19 cri­sis, includ­ing help­ing to drive poli­cies and pro­grams for the ben­e­fit of all of soci­ety and cre­ate oppor­tu­nity for those who have been left out of the econ­omy for far too long.”

Look­ing ahead, JPM pro­vided the fol­low­ing outlook:

• FY2020 net inter­est income to be ~$56B, below the $56.39BN expected.
• FY2020 adjusted expense of ~$65B

In short, every­thing can change depend­ing on whether the US econ­omy is shut­down again because of covid, and as many demo­c­ra­tic states have hinted, that’s pre­cisely what is com­ing ahead of the Nov 3 pres­i­den­tial election.

Com­ment­ing on the results, Bloomberg’s Michelle Davis writes:

The biggest U.S. bank said second-​quarter profit fell 51% to $4.69 bil­lion, a smaller drop than fore­cast, as record trad­ing rev­enue helped counter the biggest loan-​loss pro­vi­sion in the firm’s his­tory. It’s the sec­ond con­sec­u­tive quar­ter that trad­ing set a record, as the bank’s Wall Street unit is help­ing prop up a consumer-​lending divi­sion strug­gling with busi­ness clo­sures and swelling unem­ploy­ment rolls.

In response to the earn­ings, the stock surged ini­tially, likely boosted by the strong read of trad­ing rev­enue, which how­ever then faded as atten­tion turned to the bal­ance sheet.

Full Q2 pre­sen­ta­tion below:

Accord­ing to a Mon­day court fil­ing (see below), Ghis­laine Maxwell bolted to another room when FBI agents showed up to her secluded New Hamp­shire estate to arrest the accused sex-​trafficker.

When agents entered, they found a cell phone wrapped in tin-​foil sit­ting on a desk in what pros­e­cu­tors described as a “mis­guided effort to evade detec­tion, not by the press or pub­lic, which of course would have no abil­ity to trace her phone or inter­cept her com­mu­ni­ca­tions, but by law enforcement.”

FBI agents were first barred from enter­ing the prop­erty by a locked gate they had to pry open and were then con­fronted by one Maxwell’s pri­vate guards, accord­ing to the U.S.

When the agents approached the front door, they caught a glimpse of Maxwell through the win­dow, try­ing to “flee” rather than answer them. The FBI ulti­mately forced to “breach” Maxwell’s door to enter and only arrested Maxwell after she was found “in an inte­rior room in the house,” accord­ing to the gov­ern­ment. -Bloomberg

Accord­ing to the fil­ing, one of Maxwell’s secu­rity guards told agents that that the British socialite’s brother had hired for­mer mem­bers of the British mil­i­tary to guard her24 – 7. As Bloombergreports, Maxwell gave one of the guards a credit card in the name of the same LLC which bought her lux­ury New Hamp­shire bugout last year. Accord­ing to the guard, Maxwell hadn’t left the prop­ertyin the time he’d been work­ing there, and had been ordered to buy things for the estate.

Fed­eral pros­e­cu­tors detailed the lengths Maxwell went to in order to evade US law enforce­ment in order to argue that she’s a flight risk who has access to “extra­or­di­nary finan­cial resources” and would flee the coun­try if allowed free on bail. A fed­eral judge will decide on Tues­day whether to grant Maxwell’s request to post $5 mil­lion bond so she can live under house arrest until her trial.

“She has demon­strated her abil­ity to evade detec­tion, and the vic­tims of the defendant’s crimes seek her deten­tion,” said DOJ pros­e­cu­tors in their fil­ing. “Because there is no set of con­di­tions short of incar­cer­a­tion that can rea­son­ably assure the defendant’s appear­ance, the gov­ern­ment urges the Court to detain her.”

Maxwell wouldn’t be extra­dited if she fled to France where she has cit­i­zen­ship, argued the pros­e­cu­tion, as the coun­try does not extra­dite its own cit­i­zens to the US for pros­e­cu­tion, accord­ing to the report.

The gov­ern­ment also argued Maxwell has been hid­ing from author­i­ties, liv­ing in a secluded 156-​acre estate in Brad­ford, New Hamp­shire, since late last year.

Maxwell is accused of lur­ing girls as young as 14 for sex­ual encoun­ters with Epstein and engag­ing in some of the abuse. Pros­e­cu­tors argued she could face as long as 35 years in prison if con­victed. Epstein died in a Man­hat­tan lockup last August of an appar­ent sui­cide while await­ing trial on fed­eral sex-​trafficking charges.

While Maxwell’s lawyers said in a sep­a­rate court fil­ing that she has six peo­ple will­ing to co-​sign her bond, pros­e­cu­tors argued she hasn’t iden­ti­fied these peo­ple, whether any are even in the U.S. or have the suf­fi­cient finances to pay if she does flee. -Bloomberg

Maxwell’s defense team also cited her long ties to the US, where she has lived for decades. They’re also argu­ing that Maxwell was cov­ered by Epstein’s con­tro­ver­sial 2007 non-​prosecution agree­ment which allowed the con­victed pedophile to avoid fed­eral sex traf­fick­ing charges.

Fed­eral pros­e­cu­tors called that “absurd,” argu­ing that the cur­rent case involved evi­dence from two new accusers who weren’t involved in the prior pros­e­cu­tion — and that their case could become “even stronger” as addi­tional wit­nesses have come for­ward to offer evi­dence against Maxwell.

See the court fil­ing below: