Since Feb. 20 shares in JPMorgan Chase (NYSE:JPM) have lost over one-third their value.
The shares opened March 17 at about $90. They were at $137 as recently as Feb. 20.
This represents an $80 billion loss to common shareholders, driven by expectations that the bank’s reserve against losses, which was increased this year under the Current Expected Credit Losses (CECL) standard, will prove inadequate.
The bank added $4.3 billion to its consumer loan loss reserve in December, cutting earnings by $2.7 billion. It still managed to beat estimates for the quarter, earning $8.5 billion. Total loss reserves jumped $5 billion, the bank said at its investor day.
That’s looking like good business. But does that mean you should put money to work in JPM stock today, when there are so many other “fallen angels” around?
How Bad Is It?
Financial stocks were among the hardest hit in the March 16 collapse of stock prices. JPM stock lost over 15% of its value in one day.
JPMorgan felt it necessary to issue a statement of reassurance during the rout, insisting it has the resources to support the financial system. This came just a day after its own trading system for big clients collapsed, during a 1,600-point loss in the Dow Jones Industrial Average that has since been overshadowed by Black Monday’s 3,000-point plunge.
One big reason for pessimism is that JPMorgan had become the bank of choice for oil companies. At the time it announced a reduction of support last month, the debate was mostly about the environment.
Now it’s about the bank. As of December, the bank had $41.6 billion in loans to the energy industry, 4.4% of its total loans outstanding. Odeon Capital analyst Richard Bove has become bearish on the whole big bank sector, because of this exposure.
JPMorgan’s own analysts have been blindsided by the size and speed of the stock market’s collapse. As recently as March 10 they were calling the drop too severe. Since then the average S&P 500 stock is down by 20%.
While it’s clear that the U.S. is looking at a sharp recession, the 2008 collapse and subsequent reforms have given the banking system a bigger cushion against risks. JPMorgan is no longer trying to cushion its stock’s fall, having decided to halt stock buybacks before its latest drop. The bank has not, however, halted its dividend, a 90 cent per share payout now yielding 3.8%.
JPMorgan Chase is next due to report earnings April 14, with $2.74 per share expected on revenue of $29.8 billion. Those numbers now seem wildly inflated, but they do indicate the bank’s earning power in normal times. Before the crash, and his own heart surgery, CEO Jamie Dimon said the bank was “on the hunt” for a big fintech acquisition.
The Bottom Line on JPM Stock
JPMorgan Chase is going to have a few bad quarters, but thanks to the last decade’s reforms it has the financial strength to get through it.
The bankers haven’t lost their minds. They have been making quiet deals with companies like Lyft (NASDAQ:LYFT), on behalf of cardholders, aimed at increasing card market share as society adjusts to the new realities. Fintech will remain the bank’s focus when business resumes.
The bottom line is that JPM stock is a port in the storm for nervous investors. If you own some shares and must liquidate something, liquidate something else. If you have cash that needs to make a profit, it will come back.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM.