This Day On The Street
Continue to site
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

Should Investors Buy JPMorgan's Promise?

NEW YORK ( TheStreet) -- In wondering whether or not to make an investment case for JPMorgan Chase (JPM - Get Report), I'm reminded of something Warren Buffett said: "It takes 20 years to build a reputation and five seconds to ruin it. If you think about that, you'll do things differently."

I think this is exceptionally true for JPMorgan.

It is fair to say there is a considerable amount of regret from its management, in particular from CEO Jamie Dimon. The company earned Wall Street's respect for managing the credit crisis much better than its peers including Bank of America (BAC) and Citigroup (C).

Then, suddenly, it all evaporated and its "cleaner bank" image was gone.

Since early April the stock has lost almost 25% of its value after reports surfaced the company had a huge credit-derivative loss. However, earlier this month the bank said the poor trade had actually reached loss levels of almost $6 billion this year, with a chance of possibly reaching $7.5 billion when it is all said and done.

The company's (initial) announcement of a $2 billion loss, coupled with the ongoing fiscal concerns of Europe, demonstrate how banks were caught in the cliché of "one step forward, two steps back."

Unfortunately, the news arrived just when it appeared the financial sector was rebounding -- that, although investors had become less trusting of financial stocks, the market was prepared to offer a slight pardon for past indiscretions.

However, to the company's credit, it has acted accordingly and management has cooperated as best it can to bring transparency to what was really a murky situation involving complex deals that required a accounting PhD to understand. But it does not change the poor timing of it all.

Good Signs

What is clear these days is JPMorgan is saying and doing all of the right things. While I would not put it in the category of the BP (BP) oil spill in the Gulf of Mexico a few years ago, there are some similarities, particularly with the loss of trust and the public relations disaster that was caused.

JPMorgan's challenge was to find a way to repair the damage and regain the confidence of investors. At the onset it would appear that the company seems committed to doing this.

Case in point: Last week it was revealed CEO Dimon and his wife bought over $17 million worth of the company's stock. While the Dimons may actually see value in the stock (as I do), I can't help but consider this to be a good PR move, a way to show confidence in the bank.

The question is, should investors buy in as well? Has all of the bad air been let out of the stock? Its recent earnings report would suggest that to be the case.

I think saying JPMorgan did as well as can be expected would be an understatement. The bank reported net income of $5 billion, or $1.21 earnings per share. It produced solid results in its retail banking as well as Treasury services.

What's more, it generated lower-than-expected losses on loans. It showed considerable improvements in key areas such as mortgage loan origination which was up 29% annually and 14% sequentially.

Also showing growth were mortgage loan applications, which surged 37% from the previous year and 12% from the first quarter. So there are plenty of reasons to be optimistic about the company's chances for a recovery.

Bottom Line

JPMorgan was once known as the "cleanest shirt in the dirty hamper." While it was not a glowing endorsement, it was certainly preferred over being considered the villain within a sector where many of its peers are hated.

I think it will take some time for the bank to regain some of that lost trust, but it's not an impossible feat. From an investment standpoint, I would certainly agree with the Dimons and would buy this global banking franchise as the stock is trading below its long-term potential.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JPM $63.20 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs