JPMorgan Chase: Don't Hit the Panic Button (Update 3)
Similar to the Volcker Rule, the Merkley-Levin Amendment would ban "bank holding companies, and their affiliates and subsidiaries from engaging in high risk speculation involving any stock, bond, option, commodity, derivative, or other security or financial instrument," according to the website of Senator Jeff Merkley (D-Ore.). Like the Volker Rule, implementation of the Merkley-Levin language would be difficult for the Federal Reserve and other bank regulators, because of the challenge to differentiate between "trading," hedging activities and market-making activities on behalf of clients.
Friday's volatility of course presents many opportunities for day traders, but also a golden opportunity for long-term investors.
Guggenheim Securities analyst Marty Mosby left his "Buy" rating for JPMorgan Chase unchanged, saying in a report on Friday morning that since his firm estimates "JPM should earn around $5 billion each quarter this year, we believe this event could create earnings volatility, but it is not large enough to be a capital event," adding that Guggenheim does "not expect capital positions to erode from current levels, rather, this event would only slow the improvement."
Mosby also said that "one of the characteristics of a money center bank is volatility, which is why JPM has the lowest P/E to our 2013 estimate at 6.9x while the median for our large cap banks is 9.3x."
Guggenheim estimates that JPMorgan Chase will earn $4.96 a share this year, followed by 2013 EPS of $5.68. Mosby's price target for the shares is $53.00.
Sterne Agee analyst Todd Hagerman on Friday reiterated his neutral rating on JPMorgan Chase, with a price target of $50, saying that "the timing and magnitude of the announcement are certainly poor, given the intensity of the current regulatory debate surrounding proprietary trading (Volker) and the negative optics surrounding the outsized use of synthetic derivatives to hedge credit risk across the organization." But the analyst also said that "the company's $12B share repurchase authorization gives JPM significant flexibility to deploy capital and buy back shares in the event of outsized price weakness - providing an implicit floor for the stock," of $34.19, or Hagerman's estimated tangible book value for the shares.
JPMorgan's board of directors in March authorized $12 billion in share repurchases for 2012, with another $3 billion in buybacks authorized for the first quarter of 2013.
-- Written by Philip van Doorn in Jupiter, Fla.