The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
stock is caught up in the undercurrent that is dragging down share prices of all financial sector firms, with the bank's shares trading around $29. These are lows the stock hasn't seen since early 2009.
Clearly the fact that the bank surpassed rival
Bank of America
to become the largest in the U.S. in terms of total assets last quarter did not help its stock much.
In view of the weak global economic conditions -- primarily the escalating debt situation in Europe -- and the string of lawsuits concerning the bank, we reviewed our analysis for JPMorgan and revised our
price estimate for its stock from $45 to $39.
The new price estimate is still nearly 40% above the stock's current market price -- the result of the extremely pessimistic market sentiment toward all banks with exposure to Europe. Below, we explain the rationale for our 14% reduction in price estimate for JPMorgan's stock.
See our full analysis of JPMorgan
The extremely volatile market conditions resulted in poor sales and trading operations for nearly all investment banks in the third quarter. Although banks have cut down considerably on their exposure to the riskiest economies in Europe, the danger of the debt crisis spreading to the stronger French and German economies looms large, and banks are expected to be more cautious with their trading operations in the near future.
This should result in slower growth in JPMorgan's trading assets than we had previously forecast, at least for the next two years.
JPMorgan's investment banking operations are also expected to slow down in the near term as economic conditions threaten to reduce global capital-raising activities. This will drive down the volume of debt origination, equity origination, as well as M&A deals.
We have shaved off nearly 25% from our earlier estimates for the size of global M&A deal volumes over our forecast period.
We have also updated our analysis of JPMorgan to incorporate detailed data about the bank's mortgage business, including revised estimates for the provision for losses expected from the operations.
With investors already showing concern about the quality of the real estate portfolios held by major banks, we expect the size of JPMorgan's real-estate loan assets to shrink over the years to come. The number of lawsuits related to mortgages pending against the bank will also drive up costs for the division in subsequent years.
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.