The disclosure that banking giant JPMorgan Chase would have a trading loss of $2 billion or more because of some "egregious" derivative bets by one of its units prompted shock and disbelief throughout Wall Street.
Below is a sampling of some of the comments and notes from various analysts at investment firms and trading houses:
FBR’s Paul Miller:
Dimon's in the Rough
“We worry about the potential risk the credit derivatives portfolio poses to earnings going forward.” Downgrade JPM to “market perform.”
RBC’s Gerard Cassidy:
The Prize Fighter Is Knocked Down, but Not Out
"The bigger issue, in our view, is the hit to credibility." Maintains “outperform” rating, cuts earnings per share to $5.15 from $5.40,
Baird’s David George
Losses in CIPO Portfolio Create Near-Term Overhang; Near-Term Weakness Creates Long-Term Opportunity.
“We are sticking with our ‘outperform’ rating on JPM shares, but investors may rotate into higher-quality regionals or higher-beta banks with less capital markets exposure.”
Goldman’s Richard Ramsden
Losses Add Uncertainty, but Story Remains Intact
"While we believe this to be a tail-risk event specific to JPM, the broader implications are negative, as this highlights the challenging operating environment (European overhang, difficult hedging) and raises questions around regulatory scrutiny Volcker), CCAR capital deployment approval (qualitative overlay, risk modeling practices), and the outcome of Moody’s downgrades." Maintains “buy” rating.
Wells Fargo’s Matt Burnell
JPM: Portfolio Loss Manageable, but Timing Unfortunate
"The timing of JPM’s announcement is unfortunate given the growing market concerns about risk exposures of all major U.S. banks, and the unfinished nature of the Volcker rule and is likely to result in weak performance for all UCMB stocks in the near term." Maintains “outperform” rating.
KBW’s David Konrad
"... Although a black eye for management, it is a $2 billion charge in a quarter in which we expect the company to still make near $4 billion. We believe this actually demonstrates the strength and breadth of a large diversified business model. Moreover, we expect the company to repurchase shares and is trading (based on expected open) at 8.3x our 2012 and 6.5x our 2013 estimate......not all is bad." Maintains “outperform” rating. Cuts 2012 earnings per share view to $4.60 from $5.
Bernstein’s John MacDonald
JPMorgan: Trading Loss = Big Credibility Hit
"Financial hit absorbable, but credibility hit is another question. Although the financial impact of this looks manageable for JPM, we feel that the size and sudden nature of the losses call into question multiple aspects of the company's risk management systems, and to some extent the business model that gives rise to the need for such large investments and hedges. We reduce our (price target) to $44 (from $56)."
BofA Merrill Lynch’s Guy Moszkowski
"Egregious" Loss on Hedge Change, but Franchise Intact
"We are lowering our estimates, PO to reflect weaker results in Corp/Other. We applied 'deep cuts' to our 2Q12E/3Q12E forecasts on additional hedge losses; 2012E goes to $3.90 from $4.82. We also cut our EPS modestly in '13E/'14E; the incident may drive increased regulatory scrutiny, lasting decline in PT revenues. Current forecasts support ROE of 10.5-11 percent, BV multiple of 1.075x, PO of $50." Maintains “buy” rating.
Rochdale’s Dick Bove
This Is Demoralizing
"JPMorgan has harmed everyone in this failure … This is a body blow, but one that will be managed through." Maintains “buy” rating.
— CNBC’s Nick Dunn contributed to this report.