JPMorgan Chase: Don't Hit the Panic Button (Update 3)
The consensus 2012 EPS estimate was reduced to $4.81 from $4.97 on Friday. It is important to keep in mind that the current estimate of $2 billion in trading losses for the second quarter -- partially offset by gains on securities available for sale -- is a before-tax estimate.
This looks like a golden buying opportunity for long-term investors looking to initiate or add to positions in JPMorgan Chase's common shares.
With such strong language from Dimon -- which is, of course, a large part of his appeal to investors -- some turmoil seems likely, including some high-profile management changes, but this event could be a blessing in disguise, as the company works even harder on its hedging strategies and risk management.
Friday was a volatile day for the banking sector, with the KBW Bank Index (I:BKX) recovering from its earlier decline of more than 2%, to close at 46.40, for a decline of just over 1%, with all but seven of the 24 index components showing declines.
The political reaction to the disclosure is also likely to continue, possibly with additional legislation introduced in Congress.
Senator Carl Levin (D-Mich.) wasted no time in reacting to JPMorgan's announcement, saying in a statement late Thursday that "the enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making," and that "today's announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets."
Somehow, it seems quite unlikely that taxpayers will be covering any of JPMorgan Chase's hedging "bets," and the good senator may have forgotten that JPMorgan Chase repaid the $15 billion in government bailout funds received through the Troubled Assets Relief Program in June 2009, having paid the government (and U.S. taxpayers) over $795 million in dividends.