Analysts See Impact on JPMorgan's (JPM) Reputation as Most Harmful Part of CIO Loss

May 11, 2012 3:28 PM EDT
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Price: $86.70 --0%

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    18 Buy, 18 Hold, 4 Sell

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Traders on the Street are clearly concerned with JPMorgan (NYSE: JPM) following Thursday's unexpected news the bank is now expecting a loss of $800 million to its CIO unit; shares have been down about 9 percent throughout the session. Analysts, however, seem to be mixed on the bank and the stock amid the news. Let's take a look at some of the calls from Friday:

  • FBR - Downgraded the stock from Outperform to Market Perform

  • Stifel Nicolaus - Downgraded JPMorgan from Buy to Hold

  • Goldman Sachs - Said while the losses add uncertainty, the story remains intact. Warned of near-term downside on shares, but said the stock will be supported by share buybacks and the dividend. Maintains Buy.

  • Deutsche Bank - Noted JPMorgan trades at a premium valuation on book compared to peers given "better earnings power on that book, but also due to a perception of better risk management (this announcement doesn't help this)." Believes the "newsflow in the near term is likely to get worse before it gets better as everyone tries to figure out what went wrong..." Maintains Buy.

  • Wells Fargo - Pointed out the loss is relatively modest compared to 2012 estimated earnings, however called the losses "embarrassing" as JPMorgan "prides itself on its risk management capabilities." Wells Fargo called the timing "unfortunate." Maintains Outperform.

  • Barclays - Reduced estimates modestly to reflect the CIO loss and said "still misaligned hedges aren't expected to be corrected until year-end which could make EPS more volatile." Maintains Overweight.

  • Credit Agricole - The firm's Mike Mayo said the news could demonstrate "some of the banks may be too big to manage." He called the loss a "big black eye." Maintains Underperform.

  • Citi - Said the timing of announcement "could not have been worse" amid recent regulatory risk. Mainly concerned with the "ultimate cost" of the trade.

  • UBS - Called the item a "rare, but isolated incident..." Believes this will be a short-term stumble. Maintains Buy.

  • Oppenheimer - Said the adverse publicity and hit to investor trust will have a larger impact than the actual financial terms of the loss. Still, the firm is expecting limited downside. Maintains Outperform.

  • Nomura - "We think the overall financial impact (including $1bn+ in further unwind costs) is not the main issue given the company’s already high capital (adjusted 8.2% B3T1C) and JPM’s quarter run rate earnings >$4bn. What really hurts is the negative impact on JPM’s reputational premium that is likely to hit the stock." Maintains Buy.

  • RBC - Said the "prize fighter is knocked down, but not out..." and called the loss "no light matter." The issue raises concerns about other exposure and the adequacy of the bank's risk management. Maintains Outperform.

  • Sterne Agee - Believes JPMorgan's fundamentals are unchanged despite the headline risk, but is negative on the overall broker segment amid regulatory scrutiny. Maintains Neutral.

  • Atlantic - Sees the bank potentially becoming even more risk adverse moving forward, something which could impact long-term profitability. Maintains Overweight.
JPMorgan shares last traded at $36.80.

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