Updated with market close information, comments from Guggenheim Securities analyst Marty Mosby, Comments from Sterne Agee analyst Todd Hagerman, and further details about the Levin-Merkley Amendment and the Volcker Rule.
NEW YORK (
) -- A $2 billion trading loss is a drop in the bucket for strongly capitalized, profitable banking giant with a $15 billion share buyback program in place.
(JPM - Get Report)
CEO James Dimon's announcement late Thursday of a $2 billion second-quarter
pushed the company's shares down over 9% on Friday, to a closing price of $36.96.
| JPMorgan Chase CEO Jamie Dimon
Rather than hit the panic button, investors need to keep in mind that a $2 billion trading loss -- offset by a $1 billion securities gain -- is a minor blip for JPMorgan Chase, which earned $5.4 billion during the first quarter and had $2.3 trillion in total assets as of March 31.
Dimon was quite candid in saying that the company's hedging strategy that led to the loss included "egregious mistakes" that were "self-inflicted," but also stressed the company's "fortress balance sheet," with an amended March 31 estimated Basel III Tier 1 common equity ratio of 8.2%. The original estimate was 8.4%.
Dimon also said that the trading loss was unlikely to affect its plans to return capital to investors, which, in addition to the share buybacks, include a quarterly dividend of 30 cents, for an attractive dividend yield of 2.95%, based on Thursday's closing price of $40.74.
JPMorgan Chase's shares returned 24% year-to-date through Thursday's close. The shares had already pulled back 12% from their year-to-date closing high of $46.49 on March 27.
The shares at Friday's close traded for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for just seven times the updated consensus 2013 earnings estimate $5.56 a share, among analysts polled by Thomson Reuters.
The consensus 2012 EPS estimate was reduced to $4.81 from $4.97 on Friday. It is important to keep in mind that the current estimate of $2 billion in trading losses for the second quarter -- partially offset by gains on securities available for sale -- is a before-tax estimate.
This looks like a golden buying opportunity for long-term investors looking to initiate or add to positions in JPMorgan Chase's common shares.