Joining in on the debate over what will happen to JP Morgan in the wake of its $2 billion loss, Oppenheimer bank analysts led by Chris Kotowski took the side that although the loss will be a big hit to JP Morgan, the blunder’s effect will be more impactive psychologically than to JP Morgan’s bottom line.
The central message: “This too shall pass.”
Despite that, Kotowski estimated that it is likely JP Morgan will lose up to $4 billion from its trading position by the end of Q2, a liberal increase from the $2 billion loss JP Morgan said it will take. Oppenheimer’ also lowered their earnings per share estimate for JPM’s second quarter from $1.39 to $0.84.
The damage is mainly psychological. It re-arms all the detractors both in investing and political circles. It invites people to short the stock and then issue exaggerated loss forecasts. The one fortunate thing is that the fundamental improving trend in virtually all commercial banking indicators remains unbroken; we also note that JPM has a fortress balance sheet and a $15 billion buyback authorization. If the stock were significantly pressured in coming days we are virtually certain that JPM would be buying stock, and while this is clearly a major black eye for JPM, we would be doing likewise.
Kotowski is maintaining his ‘Outperform’ rating on the stock and his $58 12-18 month price target.