The tornado siren went off in our Atlanta neighborhood last night. It turned out to be nothing. We were lucky. JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon had a similar experience recently. His tornado siren came in the form of emergency heart surgery. He’s back to work, albeit in a home office. But the bank seems as shaken as we were last night. The question is, where do we go with JPM stock from here?
JPMorgan Chase economists now see the U.S. economy contracting at a 40% annual rate in the current quarter, up from a previous estimate of 25%. Unemployment will be 25%. It’s going to be a “bad recession,” and the bank is not ready to process emergency small business loans.
JPMorgan Chase is hunkering down, leaving customers lost in the storm of the novel coronavirus.
No Free Money
Despite Congress passing a program that could put $349 billion into small businesses, Dimon admits his bank isn’t ready to process the paperwork.
This has small businessmen like TV analyst Jim Cramer, who also owns a restaurant, depressed and angry. Small restaurants can’t front salaries. They must lay people off. This could leave millions of them ineligible for the new loans.
The bank itself is in good shape. JPM stock has been the best big bank stock so far in 2020, down just 14%. Wells Fargo (NYSE:WFC), by contrast, is down 42%.
JPM is expected to report earnings of $2.48 per share on April 14, almost three times its 90 cent per share dividend. Despite this, some analysts are asking whether the dividend should be suspended, as buybacks are being suspended.
A suspension would send the shares tumbling and mean another leg down for the economy. The dividend represents a yield of 3.5% to current shareholders. Many are retirees who live on that cash.
For now, I expect the dividend will be maintained.
The Virus Hits Home
Meanwhile, the bank is dealing with an outbreak of coronavirus at its own New York offices. It tried to separate traders into three locations, but one came in sick, and soon 20 were sick. While stock trading is office work, it’s not home-office work. The traders were forced to come in despite the risk.
The reality that the bank wasn’t ready to serve its customers, and couldn’t protect the staff, finally hit JPM stock on April 13. The shares fell 3% immediately, back below $100/share. My own shares, purchased a year ago at $104, are now underwater.
JPMorgan Chase is fortunate. The bank was forced to strengthen its balance sheet after the 2008 market panic.
The $2.2 trillion bailout signed last month has plenty of money for banks and for big businesses. But the money is only trickling down to those who need it most.
Not only are small business loans being held up by paperwork, but JPMorgan is also raising standards on new mortgages. Homes now on the market may be unsold for months, putting all home values at risk.
The Bottom Line on JPM Stock
The coronavirus pandemic is not a banking crisis.
But it is something banks like JPMorgan Chase are supposed to be responding to, with massive amounts of money. Instead, the bank is triaging, prioritizing its own customers, and its best customers.
That sounds like good business. But it means an economic disaster is coming. A decade ago, Dimon was able to take on new risk and come out of the crisis in better shape. Now he is unable to take on new risk and the bank’s reputation may soon be suspect.
The bank’s stock is still a good place to be, if you have money to invest. But fewer people will have money to invest. Don’t expect capital gains from here, until the economy recovers.
Dana Blankenhorn has been a financial 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 and WFC.
