JPMorgan: Senate Softball Questions Winner

NEW YORK (TheStreet) -- JPMorgan Chase (JPM) was the winner among the largest U.S. financial names on Wednesday, with shares rising 2% to close at $34.30.

The broad indexes declined 1%, after the U.S. Commerce Department reported that retail sales fell by a slightly less than expected 0.2% in May, after falling by a downwardly revised 0.2% in April. Economists surveyed by Briefing.com had expected that sales contracted by 0.3% in May. Retail sales, excluding autos, fell 0.4% in May, after declining 0.3% in April.

The KBW Bank Index (I:BKX) dipped slightly to close at 43.42, with 15 of the 24 index components seeing declines for the session.

JPMorgan Chase's shares have now returned 5% year-to-date, following a 20% decline during 2011.

The shares trade just below their reported March 31 tangible book value of $34.91, and for six times the consensus 2013 EPS estimate of $5.33, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.33.

JPMorgan Chase on Tuesday announced that it would redeem $9 billion in trust preferred shares, redeeming the high-coupon paper at par, since new regulations excluding the trust preferred equity from Tier 1 capital qualified as "Capital Treatment Event."

During testimony before the Senate Banking Committee, JPMorgan Chase CEO James Dimon said that despite hedge trading losses -- estimated to be $2 billion when the company disclosed the losses on May 10 -- the company would be "solidly profitable" for the second quarter. The CEO did not provide an updated estimate of the trading losses, as JPMorgan worked to unwind its hedge positions.

Following the testimony, Dimon continued to push back against new regulations required by the Dodd-Frank banking reform legislation passed nearly two years ago, including the Volcker Rule, which may have forbidden the type trading that led to JPMorgan Chase's second-quarter losses.

Dimon said that as part of JPMorgan's review of the events that led to the hedge trading losses, the company might try to claw back previous compensation made to certain executives. Guggenheim Securities analyst Marty Mosby said "the possibility of clawbacks added on top of management changes that have already been executed creates accountability, which we view as the best management tool to contain future exposures."

Mosby also said that because the discussions during the Senate Banking Committee hearing "remained focused on this specific transaction and how regulators or management should have avoided this unknown exposure," Dimon avoided "a broader discussion of the viability of large complex financial institutions, which could threaten JPM's franchise through tougher Volcker restrictions or breaking up the bank."

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

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

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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 TheStreet.com 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.