Wall Street Analysts Still Sucking Up to JPMorgan Chase

NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM)'s shares have fallen more than 11% since its stunning disclosure of more than $2 billion in trading losses, so is the stock suddenly cheap or are analysts just afraid to criticize what may still be the most powerful bank in the country?

Analysts have 29 "Buy" recommendations, seven "Hold"s and just one "Sell" on JPMorgan, according to data from Bloomberg. On a Bloomberg proprietary scale of one to five with five being the best, Wall Street analysts rate JPMorgan the highest among the six largest U.S. banks with a score of 4.55. While that is down from its score of 4.65 before the trading loss was disclosed, it is still ahead of runner-up Wells Fargo ( WFC), which scores 4.45.
Why are analysts afraid of this man?

Twenty-eight analysts have published research reports in the wake of JPMorgan's announcement on Thursday of the trading losses that JPMorgan CEO Jamie Dimon referred to as "egregious mistakes." Just two of those analysts, Stifel Nicolaus' Christopher Mutascio and FBR Capital Markets' Paul Miller, have downgraded the shares to "neutral" in the wake of the news, while the other 26 have maintained the mostly positive recommendations they had previously, according to Bloomberg data.

"Some guys tell me that I don't get it and I suck as an analyst because I downgraded them! You should see some of the nasty email I got last Friday," Miller wrote via email.

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Sterne Agee's Todd Hagerman argued in a report published Monday that "risks are accelerating for the broker/dealers post the news and accordingly, we see as much as 10-15% further downside risk to group--perhaps more for JPM as the review unfolds, estimates and profits decline, and potential supervisory action becomes a greater risk to the company." Nonetheless, he remained neutral on JPMorgan, maintaining the $50 price target he had before the trading losses were disclosed.

Responding to an email message asking why he didn't downgrade JPMorgan, Hagerman cited his Feb. 29 downgrade of the stock, asking "does it help clients to add to the pain after falling 13% in 2 days? Don't think so. What matters is I was right while 36-38 analysts were very wrong."

Hagerman's downgrade cited "the slowing global economy, ongoing regulatory reform, and onerous capital requirements, as well as the persistent low interest rate environment will likely weigh on JPM's multiple in 2012." Nonetheless, he praised the bank's "talented management team, strong balance sheet, and leading market positions in all major lines of business."

CLSA's Mayo downgraded JPMorgan ahead of Thursday's announcement, though his May 4 note made no mention of trading-related risk that had been highlighted by Bloomberg the previous month.

Indeed, despite widespread news coverage of big bets taken by JPMorgan's chief investment office ahead of JPMorgan's April 13 conference call to report first quarter earnings, just one analyst asked about the issue on the call, and it was only to set up Dimon for his now-infamous description of the trades as a "tempest in a teapot"

Asking where JPMorgan would report profits and losses from the CIO, Bank of America Merrill Lynch analyst Guy Moszkowski excused himself immediately afterward, explaining it was "just a question that I ask in order to sort of assess the tempest in the teapot nature of the stories relative to the revenues that we see that just don't seem to be that big."

Moszkowski did not return calls.

On Thursday's conference call disclosing the $2 billion in losses, analysts remained exceedingly deferential.

UBS analyst Brennan Hawken, for example, asked "if there is, heaven forbid, any kind of Volcker-related implications on this matter."

Heaven forbid?

Hawken did not respond to a call or an email.

Analysts face lots of pressures to be deferential to the companies they cover. Analysts that are overly critical can in some instances lose access to management. CLSA's Mayo, who prides himself on his toughness, claimed Citigroup ( C) management refused to meet with him for two years as a result (they finally met with him in October 2010.

The threat of lost investment banking business also remains, according to Rochdale Securities analyst Dick Bove, despite a "global settlement" banks reached between banks and regulators in 2003 to address conflicts of interest between investment banking and research.

"There is still an implicit pressure on analysts not to say bad things about companies that have investment banking relationships with their firm," Bove says.

Bove has continued to recommend JPMorgan shares in the wake of the trading losses, though few would accuse the iconoclastic Bove of failing to say or write what he thinks.

"Unfortunately, I believe it," says Bove of his JPMorgan recommendation.

-- Written by Dan Freed in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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