JP Morgan Chase (NYSE:JPM)
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J.P. Morgan Chase & Co. (JPM) shares tanked as much as 10% Friday in a high-volume selloff, a day after Chief Executive Jamie Dimon announced a massive, surprise $2 billion trading loss on credit derivatives.
Its shares opened sharply lower but recouped some losses later in the session. They were 8.7% lower at $37.18 in early afternoon trade. Trading volume was more than five times the recent 30-day average.
With the news, announced after Thursday's market close, analysts adjusted their views downward, providing additional reasons to sell.
Citigroup Inc. immediately moved to lower its J.P. Morgan earnings estimates for the full year and the next two years, and now targets the bank's share price to reach $45, 13% less than its previous estimate. CLSA's high-profile banking analyst Mike Mayo also cut his price target for J.P. Morgan by 10% to $38.
"We view this as a failure of basic asset-liability management," Mayo wrote, adding that he expects J.P. Morgan's losses could end up being $1 billion more than the announced $2 billion.
In the announcement, Dimon disclosed losses from bets the bank's Chief Investment Office took on the values of corporate bonds. The trades, while still profitable at the end of the first quarter, went sour when prices moved against them last month.
Many analysts expressed concern that what Dimon described as an "egregious, self-inflicted" mistake might occur at J.P. Morgan's peers. Bernstein Research said the incident "will likely reinforce investor concerns about the opacity of big bank balance sheets, the predictability of their earnings and the ability of the industry to deliver consistent returns."
CLSA's Mayo took the opportunity to reiterate his call for investors to sell holdings in global banks. Bank stocks overall were dragged lower, eroding strong gains in the finance sector logged since the beginning of the year.
The Standard & Poor's 500 financial sub-index lost 0.9%, despite broad market gains. Goldman Sachs Group (GS) was 3.2% lower at $102.87, Morgan Stanley (MS) lost 3.9% to $14.99, and Citigroup (C) shed 4% to $29.42.
Thursday's disclosure by J.P. Morgan came at an unfortunate time, as Moody's Investor Service is taking a broad look at banks with capital markets operations. The ratings agency has placed J.P. Morgan and 16 others on review for a potential downgrade that may require J.P. Morgan to post billions of dollars in additional collateral.
But some market watchers aren't satisfied with that. University of Maryland business professor Peter Morici called for a breakup of big Wall Street firms, saying it may be the only way to better ensure financial stability.
"If [investment banks] failed from foolish trades their investors would lose their capital, but the taxpayer would not be on the hook," he said.
-By Amy Or, Dow Jones Newswires, +1 212 416 3142, firstname.lastname@example.org
--Christian Berthelsen, Daisy Maxey and Kevin Kingsbury contributed to this article.