Sterne Agee analyst Todd Hagerman on Monday said that in the wake of JPMorgan Chase's disclosure of trading losses last week, he saw "10-15% further downside risk" to broker/dealer stocks, with "perhaps more for JPM as the review unfolds."
NEW YORK ( TheStreet) -- Sterne Agee analyst Todd Hagerman on Monday said that he saw "10-15% further downside risk" to broker/dealer stocks, with "perhaps more for JPM as the review of the company's trading losses unfolds." As the intense reaction continued, following JPMorgan Chase ( JPM) CEO James Dimon's announcement late Thursday of a $2 billion second-quarter trading loss, the company announced on Monday that Chief Investment Officer Ina Drew had resigned. Following a 9% decline on Friday, to $36.96, JPMorgan Chase's shares down another 3% in early trading Monday, to $35.98.
Hagerman said that investors were "stunned by the announcement, particularly considering most investors have some ownership position in JPMorgan Chase , particularly as a hedge against other potential risks tied to the broker/dealers as a whole," and that aside from some investors who were "more optimistic on the company, looking for a buying opportunity at or below tangible book value ($34.19)," most investors "most investors were decidingly more negative on not only JPM, but also the broker/dealers as a whole." The increased risks for the broker/dealer space, according to Hagerman, include "the likelihood of more severe downgrades by Moody's next month, ongoing Eurozone risks, accelerating rules and toughened Fed position towards policy surrounding the Volker Rule, as well as likely diminishing revenues and profitability." Hagerman added that "the outsized trading loss and break-down in internal controls could potentially place JPM under some form of supervisory action down the road following the completion of various regulatory reviews of the loss and associated enterprise risk management processes/controls," and that "the ongoing review and/or the possibility of supervisory action could possibly curtail, or even cease the company's capital buyback abilities sooner rather than later." In March, following the completion of the Federal Reserve's annual stress tests, JPMorgan's board of directors authorized $12 billion in common share repurchases for 2012, with another $3 billion in buybacks authorized for the first quarter of 2013. Hagerman has a neutral rating on JPMorgan Chase, with a $50 price target, estimating the company will earn $4.90 a share this year, followed by 2013 EPS of $5.50. Citigroup analyst Keith Horowitz has a different take on JPMorgan Chase, saying on Friday that the shares offered investors the "best potential absolute returns in the space," among the largest U.S. bank holding companies, although he also said that he was "assuming lower buyback activity of $5 bln in 2012 to be conservative."
Steve Ricchiuto, MZUHO Securities chief economist, and Bob Michele asset management global CIO with JP Morgan (JPM), joined BloomberTV's 'Bloomberg GO' to discuss the economy and the Fed raising rates.