{"id":29888,"date":"2012-05-28T07:26:26","date_gmt":"2012-05-28T11:26:26","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/j-p-morgan-chase-a-screaming-buy-for-value-stock-investors\/"},"modified":"2012-05-28T07:26:26","modified_gmt":"2012-05-28T11:26:26","slug":"j-p-morgan-chase-a-screaming-buy-for-value-stock-investors","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/28\/j-p-morgan-chase-a-screaming-buy-for-value-stock-investors\/","title":{"rendered":"J.P. Morgan Chase: A Screaming Buy for Value Stock Investors"},"content":{"rendered":"

Article by Investment U<\/a> <\/p>\n

\"J.P.<\/p>\n

J.P. Morgan Chase (NYSE: JPM) isn't going anywhere. Don't miss out on this rare value stock investing opportunity.<\/p>\n<\/div>\n

Unless you\u2019ve been on a deserted island for the last two weeks and haven\u2019t heard:<\/p>\n

J.P. Morgan Chase<\/strong> (NYSE: JPM), our country\u2019s biggest bank, admitted on May 10 to an unexpected trading loss in its chief investment office (CIO) unit.<\/p>\n

And to make it more of a public relations nightmare, it\u2019s a bad hedge on credit derivatives. At that time, the loss was reported at more than $2 billion. According to Morgan\u2019s chief executive, Jamie Dimon, who called the actions \u201cflawed\u201d and \u201cpoorly reviewed,\u201d it\u2019s going to take some time before they know the total damage. Its shares have tumbled in response falling 2.9% to close at $32.51 on Monday of this week, bringing their monthly losses to 24%. So far this year, the shares have lost 2.2%.<\/p>\n

This, my friends \u2013 believe it or not \u2013 is what\u2019s called a buying opportunity.<\/p>\n

The Star Pupil of the Bank<\/strong><\/h2>\n

So how did this happen?<\/p>\n

Up to this point, the chief investment office had been the star pupil of the bank. The unit was bringing in some big profits for J.P. Morgan even as other businesses at the bank, like home loans, began to hemorrhage. What no one addressed however, were the unit’s increasing risk. Or since they were making money \u2013 no one really cared.<\/p>\n

As early as 2010, the senior banker who has taken the blame, Ina Drew, began to lose her grip on the bank’s chief investment office, according to current and former traders. She had guided the bank through some of the really tough times of the 2008 financial crisis, earning the trust of Dimon.<\/p>\n

But after contracting Lyme disease that same year, she was frequently out of the office for a critical period, when her unit was taking riskier positions, and her absences allowed the inmates to run the asylum.<\/p>\n

Dimon has described the trades as “sloppy” and “stupid,” and believe me he will not be embarrassed again.<\/p>\n

Profiting Despite the Loss<\/strong><\/h2>\n

J.P. Morgan Chase is the biggest U.S. bank by assets and it\u2019s still expected to make a profit in the second quarter despite the losses in the CIO unit.<\/p>\n

When everyday citizens start hearing about the loss of billions of dollars, we think the world is about to go bankrupt. But, in the world of government and high finance, the word billion isn\u2019t that special. Remember, we have a deficit in the trillions.<\/p>\n

So to J.P. Morgan, a $2-billion loss is not a huge amount. The loss represented about 0.5% of J.P. Morgan\u2019s Cash and Cash Equivalents. Even with the loss, J.P. Morgan remains within the required Basel III Capital Requirement of 8% at 8.2% to be exact.<\/p>\n

To relate it to the common man, you just lost your buy-in on poker night.<\/p>\n

Media Versus Fundamentals<\/strong><\/h2>\n

A $1-billion net trading loss during the second quarter would bring down earnings by around $0.17 per share. Analysts over the past week have already lowered their full-year estimate by $0.27. Even when you take all this into consideration, J.P. Morgan\u2019s earnings are expected to go up to $4.71 per share this year from $4.48 last year. Early forecasts for next year call for earnings of $5.55 a share.<\/p>\n

In March, I wrote an article about banks that passed the Fed\u2019s stress tests and how they were then given permission to raise dividends. J.P. Morgan decided to increase its dividend to $0.30 a share and set in motion a $15-billion equity repurchase program.<\/p>\n

Speaking at a financial-services conference organized by Deutsche Bank in New York, Dimon, stated that the bank will maintain its dividend.<\/p>\n

\u201cI\u2019ve been asked a lot of questions about capital distribution,\u201d Dimon said. \u201cI made the mistake at the shareholder meeting, saying I hoped to continue dividends. No, we intend to maintain the dividend.\u201d<\/p>\n

He reiterated that the bank still has a \u201cfortress balance sheet\u201d that is \u201cbarely nicked by this thing.\u201d<\/p>\n

The repurchase program has been put on hold. Now there\u2019s been dialogue out there that the repurchase program was suspended because of the loss. However, as the numbers show, that doesn\u2019t wash. But here is what does:<\/p>\n