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By: GZ on Mercoledì 18 Settembre 2002 15:02
la conference call e i risultati di JP Morgan di ieri sera sono riassunti qua molto bene sul realmoneyPro da Jeff Bagley.
Sono in effetti un "incidente ferroviario" come dicono in inglese, ma più che altro perchè si è mangiata 1 miliardo di $ di utili di trading che fa sempre perdendo sui bonds e derivati delle telecom.
Se guardate bene le banche di wall street a differenza delle italiane ad es fanno da 1 a 3 miliardi di $ di utile solo con il trading e questo però possono anche mangiarselo tutto quando il mercato esplode o implode perchè loro sono quelli che fanno arbitraggio.
JP Morgan è quella più aggressiva nel trading e nei derivati e ha le oscillazioni maggiori.
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Jeff Bagley analyzes the J.P. Morgan conference call at 5:15 p.m. ET.
Jeffrey Bagley is a portfolio manager for McCabe Capital Managers, Ltd. McCabe Capital, a registered investment advisor located in King of Prussia, PA, directly manages approximately $200 million and provides consulting services to clients with approximately $4 billion under supervision. Prior to joining McCabe Capital, Jeffrey was a sell-side analyst at Schroder & Co. and NatWest Markets.
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This is one of the slowest moving train wrecks that I've encountered. Unfortunately, one can't look at this announcement and be confident that this is the end of the writedowns. There will be more, but how much? Also, trading revenues are the real wildcard here, since they have absolutely fallen off a cliff. Management didn't sound very convincing when they indicated that trading revenues could get back up to the prior run rate of at least $1.2 billion per quarter.
Unfortunately, I believe that the Board might be making a mistake as far as maintaining the dividend is concerned. Although regulatory capital ratios remain adequate to maintain the dividend, the very high payout and the prospect of a dividend cut will likely continue to hang over the stock. I would caution against valuing the stock on a dividend yield basis, and instead focus on the difficult task of determining what "normalized" earnings might be.
My guess is that 2002 estimates will come down to the $1.65-$1.85 range (from $2.30), and 2003 estimates will come down to the $2.00-$2.20 range (from $2.96). I am afraid that given the company's deteriorating market postition -- coupled with its past reliance on very risky credits and venture capital -- that normalized earnings might not be much above $0.60-$0.65 a quarter. (Again, trading revenue is a huge swing factor, and we really have no idea where this is going.) Assuming $2.50 a share in normalized earnings power and a multiple of about 10 times earnings, my very rough, simple price target is somewhere in the mid-$20s.
It's not for me, though. I did a somewhat embarrassing stint as a JPM shareholder in the past, and I got out with only minor losses. It just feels as if this wasn't enough of a kitchen-sink quarter to clear the decks. In other words, more danger lurks, and although the stock has been very weak recently, there are far better opportunities in this sector, in my view. .
Consumer Credit Losses
09/17/02 06:08 PM EDT
Q: Consumer credit losses?
A: Consumer credit trends continue to improve. (Yahoo! Finally something positive for JPM and others.)
No positions.
Court Decision
09/17/02 05:59 PM EDT
July Value At Risk levels weren't much different from other periods. All units were within their risk limits. They didn't see Friday's adverse court decision (re: Enron and Mahonia) as a large setback. (I think these guys are in denial, since I and others thought that ruling was a significant negative. I believe the insurance companies have a great case.)
Old hand Jim Hanbury trying to squeeze guidance out of the company. He gets a small profit, as I do, when he plugs the press release numbers into his model. Management not biting, and will not give guidance. Can't pinpoint what part of profit swing is due to proprietary trading, since proprietary risk taking is a part of the whole trading business. If I'm not mistaken, they indicated that a third of the shortfall is due to the proprietary trading unit.
Credit Deterioration
09/17/02 05:51 PM EDT
Analysts still can't believe the losses and the deterioration in credit quality in such a short time. I don't blame them
Future Headcount Cuts
09/17/02 05:47 PM EDT
Q: Where do the future headcount cuts come from, given that so much was cut already?
A: Need to figure out which businesses will come back and cut accordingly. Need to balance short- and long-term prospects. There is room left still to cut investment banking. (As far as capital markets businesses are concerned, it's my view that the combination of Chase and JPM pretty much killed this segment. It's been downhill since the merger.)
Client Flow Down
09/17/02 05:44 PM EDT
Client flow was down 10%-15%, and primary and secondary issuance was down, adversely affecting trading revenues. Convertibles were bad as well, and widening credit spreads hurt as well. September was much better, however, which is a positive.
Ratings Cut
09/17/02 05:41 PM EDT
S&P and Fitch has cut ratings on the bank. Management indicates that it will affect the business, but not substantially.
As far as venture capital is concerned, there is some continuing losses, but the real big negative effects were addressed last year with some large write-offs then.
They knew that telecom was bad and more write-offs were coming, but they underestimated how bad telecom became
Nonperformers
09/17/02 05:33 PM EDT
Nonperformers will increase by $1 billion this quarter, as specified in the press release, and it's still too early to say where it will go from there. (JPM is the poster child for the return of Glass-Steagle, if you ask me!) .
Management Seems Optimistic
09/17/02 05:32 PM EDT
As far as trading is concerned, September markets are little more normal. Management seems optimistic that they can get back to the $1.2 billion/quarter level for trading revenues, but who knows?
Q: Of the credit losses, what share is immediate charge-offs and what share is reserve boosting?
A: No specific breakdown. (Come on, guys, you should know this off the bat and be ready to disclose this!)
Revenues Wildcard
09/17/02 05:29 PM EDT
They are indicating that other income statement items are normal. Accordingly, the real wildcard here is trading revenues for the balance of the year.
09/17/02 05:28 PM EDT
But again, I bet that EPS comes down to about 10 cents for the quarter. This might be conservative, because the company has about $900 million in unrealized gains that they could realize to offset the losses.
No Guidance
09/17/02 05:26 PM EDT
No earnings guidance will be forthcoming on this call.
No Details
09/17/02 05:26 PM EDT
Mike Mayo is drilling down for more info, but coming up against a wall on details.
Q&A...Mike Mayo is first...
Q: Why are you maintaining the dividend?
A: Long-term target is 30%, and Board is taking into account other factors. (Translation: They didn't want the stock to tank too much.) Board will reconsider dividend if capital ratios become inadequate or if earnings outlook deteriorates further.
Poor July, August
09/17/02 05:23 PM EDT
Management citing a poor July and August performance in trading. No kidding, but we need more substance.
Writedowns
09/17/02 05:22 PM EDT
They believe the writedowns disclosed acknowledge the "harsh reality" of the marketplace. Loan portfolio still includes $9 billion in telecom and $3 billion in cable. They caution that further writedowns are possible. Ugh
Reverse on the Way
09/17/02 05:19 PM EDT
Company saying that the weakness in the wholesale markets will reverse. "We don't know when, but it will turn."
Yeah, that's a ringing endorsement.
No positions.
Call Preview
09/17/02 05:18 PM EDT
JP Morgan reported that its third-quarter earnings will fall far below the current consensus estimate of 54 cents. My preliminary calculation is for new EPS of about 8 to 12 cents a share for the quarter. The company has maintained the dividend at its present level, but I'm sure that there will continue to be uncertainty regarding the dividend. Credit costs have increased dramatically due to the bank's exposure to the telecom and cable sectors. Trading revenues have fallen off a cliff, and we'll look for color on that.
J.P. Morgan -- 5:15 p.m.
09/17/02 05:09 PM EDT
Modificato da - gz on 9/18/2002 13:6:43
