By Jeff Macke | Breakout – 1 hour 16 minutes ago
Yesterday JPMorgan (JPM) announced it was suspending its $15 billion buyback program. The move comes just 11 days after Jamie Dimon revealed a $2 billion trading loss stemming from a trade gone horribly wrong at the firm's Chief Investment Office.
Dimon said suspending the buyback was merely a proactive move designed to keep JPM on track to meet Basel III capital requirements. The now-deposed King of Wall Street insisted the suspension of the buyback had nothing to do with trading losses, which, he claimed, "barely nicked" JPM's balance sheet.
After JPM's May 10 conference call, Breakout discussed the Street's lack of faith in Dimon and the probability that the trading losses were likely to be much higher than Dimon's worst-case, long-term estimate of $3 billion, total. According to DealBook the toll is already $3 billion and the UK's Independent is putting the number at "$7 billion or more."
JPM is raising more questions with their every attempt to provide answers. As of the close yesterday the stock was down more than 20% since the losses were disclosed and some 30% since the start of Q2. If JPM's balance sheet is still strong the company should be buying shares hand over fist.
Adding to the mystery, nothing the company has said would seem to necessitate an announcement at all. Companies fail to follow through on such programs on a regular basis, and JPM still has the better part of the year to finish purchases. There was no reason to disclose the suspension at all, and doing so just adds to the confusion.
JPM announced the share repurchases and boosted its dividend on March 13, immediately after announcing it had passed the Fed's Comprehensive Capital Analysis and Review, otherwise known as the Stress Test. Jamie Dimon all but jammed the results in the Fed's face, releasing them during market hours rather than after hours as was planned.
Dimon's gloating marked the top of his reputation and JPM's balance sheet. Estimates are now being slashed even faster than JPM can lower guidance, and Dimon somehow seems simultaneously defiant, defensive, and ineffectual. He insists JPM will still pay its 30-cent dividend, but at this point it's unlikely he really knows if that will be possible.
JPM is rallying sharply today even as the storm clouds darken. It's possible the stock has bottomed, but it's even more likely that more horrible news is on the horizon. Buying this dip is as much a matter of faith as it is investing. Which route you choose is entirely up to you.