morning call ... 04 19 2007

JPMorgan Chase, 3rd largest U.S bank, investment banker/borkerage -EPS $1.36, to the estimate of $1 -investment banking *fixed income, improved credit *equity trading increased 60% on a sequential qter basis in Europea -reduced subprime mortgage portfolio from $15 bil to $9 bil -mortgage origination volume dropped a lot -SFAS 157 again, $0.11 eps and -only weakness advisory SFAS 159 This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. -unrealized gains or losses will flow to income statements, mitigating volativility caused by realized gains or losses -give companies more leeway to play with data -most financial companies will top estimate -implication: no big positive surprise, but sharp negative surprise -implication 2: divergence between earning and cash flow Fannie Mae and Fredie Mac -buy tens of billions of subprime mortgage, $1.3 trillion, next few years, to help troubled borrower -political move to recover the image caused by accounting scandal