Don't buy into JPMorgan sucker's rally

Wall Street has no clue about the extent of the banking giant's trading losses.

By Jonathan Berr Jul 13, 2012 12:33PM
Image: Wall Street sign (© Corbis/SuperStock)Shares of JPMorgan Chase (JPM) surged Friday after the largest U.S. bank by assets reported better-than-expected earnings, even as its trading losses mounted.  

People may regret buying into the rally, because no one seems to have a clue about what's really happening at the venerable Wall Street company.

JPMorgan estimated the trading losses caused by the "London Whale" at $5.8 billion through Thursday, $4.4 billion of which occurred in the second quarter. That's way up from an earlier estimate of $2 billion. And that number could grow further, as JPMorgan has "recently discovered information" that indicates the traders may have tried to cover up the extent of their trading losses. Remember, CEO Jamie Dimon, long considered one of the smartest people on Wall Street, first dismissed the problem as a "tempest in a teapot."

Cliches aside, given the mushrooming of JPMorgan's problems, it wouldn't surprise me if the latest earnings have to be restated, as well. JPMorgan already restated its first-quarter results, slashing net income by $459 million. The second-quarter results released Friday show that net income fell to $4.96 billion, or $1.21 per share, on revenue of $22.18 billion -- not bad, given the fragile state of the economic recovery.  

The average 52-week price target for JPM is $45.22, about 25% higher than where it currently trades. Given the company's problems and the state of the economy, that forecast seems more like a pipe dream. 

Dimon, who has been JPMorgan's CEO since 2005, has seen his credibility with shareholders erode since the trading losses were disclosed. On Friday, he noted that former chief investment officer Ina Drew, who was responsible for supervising the "London Whale," offered to return two years of her pay. Investors may press Dimon -- whose 2011 pay package of $23 million is the most of any bank CEO -- to do the same. Dimon will be lucky if that's the extent of his problems. 

Though there doesn't appear to be a groundswell calling for Dimon to quit, there are some rumblings of discontent starting to emerge. Lee Saunders, the head of the American Federation of State County and Municipal Employees, a longtime Dimon critic, noted that the trading losses underscore the "casino mentality" that permeates Wall Street. For now, the blunt-spoken son of Greek immigrants has earned kudos for tackling the problem head on. He has said repeatedly that he was unaware of the magnitude of the risks traders were taking in JPMorgan's name. That argument can go only so far, especially if the trading losses continue. Wall Street eventually will begin to ask why Dimon didn't have a better idea what was happening on the trading desk. His job is far less secure than it was before the scandal broke.

The rally in JPMorgan's shares could turn at the slightest hint of more bad news. The stock may move like a rickety roller coaster for some time, which is why it should be avoided.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.
Tags: JPM
Jul 13, 2012 2:29PM

It's all a sucker's rally and has been for 4 years.


Retail and small individual investors being the suckers.  Large Institutional investors and insiders being the carnival barkers.



Jul 13, 2012 3:09PM
Who is going to believe these cheating Bastards JP Morgan and Jamie Dimond...even in a depression the bankers rig the markets to go up these guys are good, these bankers should being going to Jail
Jul 13, 2012 3:20PM
Jul 13, 2012 1:00PM
Death penalty or life without parol.  For everyone including Dimond.
Jul 13, 2012 2:26PM
Don't buy into this sucker rally period!!!
Jul 13, 2012 2:29PM

Jonathon 'I couldnt be a bigger moron at MSNBC' Berr...dude, its been a suckers rally for almost a year long have we hovered around 12000 +/- do these clowns get their jobs?

Jul 13, 2012 2:55PM
Jonathan you got this one correct only go one step further and warn everyone not to invest in any bank, brokerage or insurance company - Frauds one and all!
Jul 13, 2012 3:22PM

Why does the link to this article say "Is this a sucker's rally?"?


The article is about JP Morgan, not the overall markets.  MSN is managed by a bunch of turds.


Jul 13, 2012 2:10PM
So... you don't have a clue as to what is going on either, but you don't feel warm and fuzzy about JP Morgan. is that it? Buffett said Jaime Dimon was one of the best bankers in the world. Hmm, whom to believe, Buffett or Berr? Tough choice.
Jul 13, 2012 4:49PM

The fact that it has taken JPM over a month just to figure out "how much" money a  handful of people in their company lost (and they still  either don't really know or won't admit it) is reason enough for me to stay away from them and any large bank like  them. 


When it comes to value investing the management is what it's  all about, and that's not the kind of management I want to own a piece of.  

Jul 13, 2012 2:58PM
It has been a suckers rally for the last 4 years.  Inflated values by the FED.  However, Tim2009 is right I believe.  Those who have stayed in during this time have been buying on the cheap, and when the economy rights itself, not if, they will be rewarded.
Jul 13, 2012 4:45PM
Jul 13, 2012 4:26PM
Someone from MSN must be missing the boat.  Trying to manipulate the market with your stupid articles.  Making money on this "suckers rally" and loving it.
Jul 13, 2012 4:33PM
Well, is it a sucker rally or not?  You didn't anser the question.
Jul 13, 2012 5:45PM

Yes ... this is a "sucker rally."  The stock market loses 300  Monday through Friday and then suddenly "rallies" 203 on the weekend (?!) ... when the average person has time to notice it.  Only the oblivious would believe it. 

Jul 13, 2012 5:26PM


What has changed?  Nothing!     Just a little hope and the market goes up.   


I must have been the Feds buying more stock. 

Jul 14, 2012 10:42PM
Don't be silly asking if Dimon knows about the deals - of course he does, but realize it's contingent on things like the FAILURE of the Euro in if they go down, he wins.

Yes, Free-Market Capitalists, one of your kings is betting on your failure.

Jul 15, 2012 7:11PM
Racism alive and well in corporate America.  If Citibank had suffered a loss like JPM, wall street would have been calling for Pandit to get fired.  But Jamie Dixon is considered the "smartest" and "best" CEO in banking? in america?  Before telling the world that there was only a 2 billion loss, he could not talk to his own people to find out that potentially there is a loss bigger than 6 billion.  Is that sign of competency??  Nobody seems to be asking wether Jamie Dixon is really capable of leading a large bank.  Is he being dishonest about the loss JPM will eventually report?  Why is Jamie's compensation not being clawed back for the last 2 years?
Jul 15, 2012 11:50AM
Ohio Files Motion to Lead JPMorgan ‘Whale’ Fraud Suit

Ohio Attorney General Mike DeWine filed a motion seeking to lead a proposed class-action lawsuit against JP Morgan Chase involving the activities of a U.K. trader known as the “London Whale.”

Ohio pension funds lost more than $27.5 million due to the alleged fraud, DeWine’s office said today in a statement. Spokesman Dan Tierney, speaking in a telephone interview, said the state is seeking lead plantiff status in the case because of “the size of the losses.”

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