Chart of the Day: The JPM Whale’s Comeuppance

by Enis May 11, 2012 8:08 am • Commentary

The headlines over the last 12 hours have been rightly focused on the debacle with JPM and its large writedowns.  I spent 4 years of my professional career focused solely on trading options on financial stocks, and you can read my cut-through-the-headlines take on the whole ordeal here.

Today I have actually included 2 charts that I find interesting, both related to JPM.

The first is JPM’s performance relative to the other big banks in the U.S. that have investment banking arms.  Look at this massive outperformance in the last year, for “best-of-breed” JPM:

Yesterday’s news will surely close that gap.  While the headline loss (and the likely larger future losses) hurts JPM, the reputational hit that knocks JPM off its perch is much more significant.  Especially since institutional investors are perennially overweight JPM because of that reputation.

I included the second chart to give you a sense of how little has changed with regards to bank balance sheets since the financial crisis in 2008 (and why banks are still so important for markets).  If deleveraging by the banks was a true phenomenon, we should see balance sheet shrinkage for JPM and its peers.  However, JPM’s balance sheet is slightly larger than it was in 2008, and a similar percentage of U.S. GDP.

JPM has the largest balance sheet of any U.S. bank, and its whale-sized losses show how much risk that entails.  No surprise to us that JPM is down almost 10% this morning.  And before you listen to the many pundits who will say to buy the dip, just remember  “There’s never just one cockroach in the kitchen.”