JPMorgan Lost $6 Billion? Buy! Buy! Buy!


Another week, another warning from megabanker JPMorgan (JPM).

Two months ago, as you probably recall, JP spooked stock market investors with news that it had managed to rack up $2 billion worth of losses, trading derivatives on European debt.

Market capitalization was lost. CEOs were subpoenaed. Mea culpas were released ... and life went on.

Then last week we learned that the news from May was much worse than initially feared. On Friday, JPMorgan announced grim second-quarter earnings:

  • Profits came in at $1.21 per share -- better than expected, but worse than the $1.27 than JP earned last year.
  • Revenues were also down -- a whopping 17% year over year.
  • And as far as the trading fiasco goes, instead of losing $2 billion, JP confessed it had actually suffered something closer to a $6 billion loss ($5.8 billion, to be exact).

So how did investors take the news? With a sigh of relief and a wipe of the brow.

Turns out, investors never really thought JP's losses would stop at $2 billion, and had been bracing themselves for a much bigger hit when earnings came out. When the news turned out less dire than feared, they rushed to bid up JP shares by 6%.

But really, they needn't have worried in the first place.

Why not? It's simple math: Over the past 12 months, JPMorgan Chase earned $16.5 billion. Analysts predict it will earn more than $17 billion by the time this year is over, and then earn $21.5 billion more next year! With profits this robust, the occasional $5.8 billion trading loss is ... well, more than a flesh wound, but certainly survivable. And if the analysts are right, next year's profit will cover this year's trading loss nearly four times over, making the London Whale's losses fade quickly into history.

Simply put, JPMorgan Chase is a fabulously profitable bank. It's not just too big to fail. It's too profitable to be brought down by one year's bad results. And at a forward P/E ratio of less than seven, and paying a dividend yield of 3.3%, the stock's arguably a better bargain today than it was before the trading loss kerfuffle began two months ago.

Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of JPMorgan Chase.

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Why is it when the rich gain money in the market the American public gets punished for it?

July 18 2012 at 2:34 PM Report abuse rate up rate down Reply

Are you insane? Who would ever bank with Chase after their arrogance. How do you lose 5.8 billion
dollars and keep your job? I cannot stand these corporate pigs and will avoid them at all costs including'
my personal and business accounts. I would fire everyone of them, Jamie Dimon you are gonr first.

July 18 2012 at 2:31 PM Report abuse +1 rate up rate down Reply

Well what is really not looked at is who is really responsible. They fired some low level people and said it is all their fauld.

Not so they were working withing what was set out for them and what they were allowed to do.

So CEO gets big bonus and fires undelings and says see I fixed it. Where the hell was he before and why was there such an area where they could do it. Because he wanted it to make more money of course.

July 18 2012 at 1:06 PM Report abuse +1 rate up rate down Reply

I have a profit and loss statement too! But, where the hell is all the money? Come on people! Send me your money! Invest in me! I promise a higher return! But, if I fail, just send more money! JP Morgan has nothing on me!

July 18 2012 at 11:12 AM Report abuse +1 rate up rate down Reply

Greedy investors will buy anything, including the gold out of their grandmother's teeth if there is a profit to be gained. These CEO like Jamie Dimon are the gurus who have this ponzi game all worked out. They relax in their Hampton Mansions and Manhattan Penhouses, and concoct every scheme known to man and the crazy thing is Wall Street and the average investors drinks the Kool Aid every time. As long as society allows gambling houses like Wall Street to operate as they do Rome is sure once again doomed to cumble.
History repeats itself over and over and over again and man is too stupid to learn from his past mistakes.

July 18 2012 at 10:09 AM Report abuse +3 rate up rate down Reply
1 reply to Ron's comment

Once again a great "hate" on the successful in this country. The "obscenely rich" you know, the ones that give folks a job. This class warefare thing has got to stop, you like to look at history, socialism does not work look at Europe!

July 18 2012 at 3:14 PM Report abuse rate up rate down Reply

Some people like to blame government for absolutely everything. I encourage people to consider the banks and Wall Street. Just within the last couple weeks Barclays is in the news for manipulating the LIBOR and now HSBC for laundering money related to the illegal drug trade. Then there's the robo signing of foreclosure forms. Banks have caused plenty of problems many we don't even know about. They are too big too fail. They own this country not the people.

July 17 2012 at 8:58 PM Report abuse +3 rate up rate down Reply
2 replies to kafienkarl's comment

Moreover banks and Wall Street are responsible for the climate change, the pollution of the sea, the arctic meltdown and so on...

July 18 2012 at 4:49 AM Report abuse rate up rate down Reply
1 reply to time1910's comment

Don't be an idiot...

July 18 2012 at 2:01 PM Report abuse rate up rate down

The government creates moral hazards for the banks (repealing Glass-Steagall without removing FDIC insurance). When the banks engage in elevated risk due to (government-induced) decreased liability, we blame the greedy banks instead of the government's incompetence. If you're going to blame the banks, you might as well blame your dog for eating your dinner when you put the dinner on the floor next to his doggy bowl.

July 18 2012 at 2:08 PM Report abuse rate up rate down Reply

What company was Corzine with and what has happened to him, he should have gone to aill. he used customers money?

July 17 2012 at 5:54 PM Report abuse +1 rate up rate down Reply
1 reply to randersjr's comment

Corzine was given a nice bonus, and is laying on his island sipping a tequila sunrise

July 18 2012 at 11:00 AM Report abuse +1 rate up rate down Reply