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Dimon's Cunning



May 12, 2012 – Comments (5) | RELATED TICKERS: JPM

There are many ways to skin this JPM cat but I will wager you that there is way more than meets they eye. If for one it's actually true that JPM lost $2B they probably came out with it to forestall future panic if what they lost is just the tip of the iceberg.

There's a different theory however. In March, JPM announced a $15B buy-back program with $12B earmarked for 2012. Further, they announced an increase in dividends. Now, both these actions lead to a reduction in shareholder equity on the books. Looking at today's numbers:

JPM share price dropped by 9.28% (-$3.78) from $40.74 to 36.96. Most of this happened pre-market.

Total volume for the day was 217MM shares (vs. a daily average of 30MM). If in their cunning ways, JPM bought all these shares at roughly $36, this would amount to $8.03B in total spend. Had the price not dropped from $40, the total spent would have been $8.8B. That is a $800MM saving, equal to 40% of the announced $2B loss.

Now, I am not suggesting a possible heist, but there is no mention of JPM having unwound those positions from their CDS Index "hedge bet" and there is no proof that JPM re-purchased every single share sold out there today.

That said, this is not beyond them and trust you me, there are some sharp knives in that drawer. 


5 Comments – Post Your Own

#1) On May 12, 2012 at 1:29 AM, mm5525 (< 20) wrote:

Thanks to the nonstop coverage of this story on CNBC and other networks, it won't suprise me to see JPM go down more next week, perhaps even to the low 30s. Many of the Washington politicos are salavating over seeing bank woes and will try to use it as a way to get more regulations, and combining with the usual Euro woes, it will spell more trouble for JPM and other money-center banks. I, too, was thinking of the buybacks today as Jamie Dimon did say the price was favorable for buybacks under $45 a few weeks ago and wondered if the JPM brass might nibble today in the midst of the "chaos." The buybacks will provide a floor no matter what whenever and however they use it. It certainly isn't a puny buyback program; it has teeth. Bruno may not be the "sharp knife" in the drawer at JPM, but exactly as you say, there are plenty of sharp knives overall at JPM. JPM is a great long-term holding, and Jamie Dimon is a great CEO. Warren Buffett said it best, 'be greedy when others are fearful' and JPM will be just fine in the long term. Plus, with the price drop for this event, it's yielding 3.24%. Disclosure: I'm long JPM. If it yields @3.5% I will happily buy more.  

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#2) On May 12, 2012 at 4:43 PM, sikiliza (< 20) wrote:

@mm5525 - Well said. If your prognosis about next week is true, I will target deep-in-the-money long term calls, as far out as 2014. That way, I can sit pretty without having to worry about near term catastrophes in the making such as spain and Greece. There's a lot of moving parts right now and with a fiscal cliff in foreseeable future I only see further turmoil in the markets. I want to hop over those difficulties.

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#3) On May 13, 2012 at 1:19 AM, awallejr (56.95) wrote:

I wouldn't touch deep in the money calls on any stock.  It is a bad investing idea.  Just buy the common with the amount of money you would spend for the calls.  No time pressure that way.

As for Dimon he should refund the salary bonus he received,  But he won't.  While he was not as stupid as Lewis was with BAC, he certainly doesn't deserve praise.  JPM is still lower than it was pre '08 crash yet people cheer him and reward him?  Please. 

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#4) On May 13, 2012 at 11:55 AM, sikiliza (< 20) wrote:

@awallejr: I wouldn't say never. CHK has worked very well in the last several weeks as panicked investors scrambled to offload their stocks. CHK's business model is not flawed but McClendon is. I would say the issue is contained and I never really have to exercise; only wait for investors to regain their sanity and realize that the world is not coming to an end.

I believe we are going to see more situations like these due to the fear levels currently building up in the markets. 

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#5) On May 14, 2012 at 11:11 PM, awallejr (56.95) wrote:

The problem with "deep in the money calls", like Cramer would suggest considering, is they are not as liquid as the common.  I agree you can profit from panic, but buying the common gives you more "wiggle" room since they aren't time sensitive.

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