This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

JPMorgan Chase: Don't Hit the Panic Button (Update 3)

Stocks in this article: JPM

With such strong language from Dimon -- which is, of course, a large part of his appeal to investors -- some turmoil seems likely, including some high-profile management changes, but this event could be a blessing in disguise, as the company works even harder on its hedging strategies and risk management.

7 Dividend Stocks You Can't Ignore Right Now >>

Friday was a volatile day for the banking sector, with the KBW Bank Index (I:BKX) recovering from its earlier decline of more than 2%, to close at 46.40, for a decline of just over 1%, with all but seven of the 24 index components showing declines.

The political reaction to the disclosure is also likely to continue, possibly with additional legislation introduced in Congress.

Senator Carl Levin (D-Mich.) wasted no time in reacting to JPMorgan's announcement, saying in a statement late Thursday that "the enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making," and that "today's announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets."

Somehow, it seems quite unlikely that taxpayers will be covering any of JPMorgan Chase's hedging "bets," and the good senator may have forgotten that JPMorgan Chase repaid the $15 billion in government bailout funds received through the Troubled Assets Relief Program in June 2009, having paid the government (and U.S. taxpayers) over $795 million in dividends.

Similar to the Volcker Rule, the Merkley-Levin Amendment would ban "bank holding companies, and their affiliates and subsidiaries from engaging in high risk speculation involving any stock, bond, option, commodity, derivative, or other security or financial instrument," according to the website of Senator Jeff Merkley (D-Ore.). Like the Volker Rule, implementation of the Merkley-Levin language would be difficult for the Federal Reserve and other bank regulators, because of the challenge to differentiate between "trading," hedging activities and market-making activities on behalf of clients.

Friday's volatility of course presents many opportunities for day traders, but also a golden opportunity for long-term investors.

Guggenheim Securities analyst Marty Mosby left his "Buy" rating for JPMorgan Chase unchanged, saying in a report on Friday morning that since his firm estimates "JPM should earn around $5 billion each quarter this year, we believe this event could create earnings volatility, but it is not large enough to be a capital event," adding that Guggenheim does "not expect capital positions to erode from current levels, rather, this event would only slow the improvement."

Mosby also said that "one of the characteristics of a money center bank is volatility, which is why JPM has the lowest P/E to our 2013 estimate at 6.9x while the median for our large cap banks is 9.3x."

Guggenheim estimates that JPMorgan Chase will earn $4.96 a share this year, followed by 2013 EPS of $5.68. Mosby's price target for the shares is $53.00.

Sterne Agee analyst Todd Hagerman on Friday reiterated his neutral rating on JPMorgan Chase, with a price target of $50, saying that "the timing and magnitude of the announcement are certainly poor, given the intensity of the current regulatory debate surrounding proprietary trading (Volker) and the negative optics surrounding the outsized use of synthetic derivatives to hedge credit risk across the organization." But the analyst also said that "the company's $12B share repurchase authorization gives JPM significant flexibility to deploy capital and buy back shares in the event of outsized price weakness - providing an implicit floor for the stock," of $34.19, or Hagerman's estimated tangible book value for the shares.

JPMorgan's board of directors in March authorized $12 billion in share repurchases for 2012, with another $3 billion in buybacks authorized for the first quarter of 2013.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,853.51 +75.36 0.42%
S&P 500 2,074.47 +13.24 0.64%
NASDAQ 4,774.2150 +25.8190 0.54%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs