Saturday, May 19, 2012

Possible Reasons For JPMorgan Chase's Market Valuation Decline Of 12 Times The Announced Trading Losses

JPMorgan Chase's stock market value has dropped 17.8 percent from the May 10, 2012 closing share price of $40.74 to May 17, 2012 Friday's closing share price of $33.49. That is almost 4 times the 4.6 percent decline of the S&P 500 in the same time. The bank's stock market equity valuation shrunk during this interval from $155.1 billion to $127.5 billion for a shareholder loss of $27.6 billion.

It was on May 10th, after the stock market closed, that CEO Jamie Dimon announced the bank's trading loss of $2.3 billion. In after hours trading, after the announcement, the bank's stock value dropped 7 percent. Other major banks saw their stock value decline in after hours trading but by a third to half as much as JPMorgan Chase.

Extra Stock Value Loss Reasons

There are several possible reasons for the stock market valuation loss greater than the one time trading losses:
  • The market expects the total losses from these trades to eventually be much greater than so far announced.

  • The market is treating the bank's announcement of the trading losses as a sign of lax oversight and trading risk controls at the trading arm of the bank and the market expects other significant losses as yet unannounced, and possibly as yet undiscovered, from other trades at the bank.

  • Investors anticipate that Congress with be able to use the bank's trading losses to pass new banking legislation, such as a return of a Glass-Steagall separation of banking and investment banking, a break up of the bigger banks, or more stringent amendments to Dodd-Frank, which will diminish future bank profitability.

  • Or some other event is expected with a negative financial impact on the bank's market valuation.

No comments:

Post a Comment