Updated with market close information, JPMorgan CEO James Dimon's announcement of a suspension of common share repurchases, and reaction by Wells Fargo analyst Matthew Burnell.
NEW YORK (TheStreet) -- Citigroup Analyst Keith Horowitz early on Monday made an "Absolute Buy Call" on JPMorgan Chase (JPM), following an 18% decline for the shares, after JPMorgan disclosed its second-quarter hedge trading loss on May 10.
Horowitz's 12-month price target for JPMorgan Chase is $45, and the analyst expects the company to achieve a 14% return on tangible equity (ROTE) "in the near term [with] longer-term 16% ROTE potential."
JPMorgan Chase's shares closed at $33.49 Friday, returning 2% year-to-date, following a 20% decline in 2011. The shares were trading "at a 4% discount to tangible book" value, according to Horowitz, and for six times the analyst's 2013 earnings estimate of $5.20 a share. Horowitz estimates JPMorgan will earn $4.35 a share for 2012.The analyst said that JPMorgan CEO James Dimon could "compensate for [a] lack of transparency" when he speaks at the Deutsche Bank Global Financial Services Investor Conference on Monday, and that "while he will not provide specifics on the [hedge trading activity], we do believe there is a good opportunity to give investors a better explanation of how this happened, why they believe this is an isolated risk [management] incident," along with a report on "how much progress has been made in closing the open trading positions." Horowitz added that "we would hope [for] a very clear statement that [the] dividend is not at risk and that buybacks are still expected in 2012." Later on Monday morning, Dimon announced that JPMorgan Chase was suspending its share repurchase program, and that he the company planned to maintain its quarterly dividend of 30 cents a share. The shares declined 3% on Monday, to close at $32.51. Following the completion of the Federal Reserve's annual bank holding company stress tests in March, JPMorgan's board of directors had authorized $12 billion in common share buybacks for 2012, followed by another $3 billion for the first quarter of 2013. Guggenheim analyst Marty Mosby said last week that buybacks at lower-than-expected prices could help JPMorgan mitigate the effect of its trading losses on shareholders. Based on "conversations with industry professionals and reports in the press," Horowitz said that his firm believes that "one element" of the trading activity that lead to JPM's announced $2 billion second-quarter trading loss was that the company "had bought near-term credit protection and then, in order to offset the costs, it sold longer-term protection in size," which would benefit JPMorgan "if there was a one-time event shock as near-term credit spreads would move higher than longer-term spreads."
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