JPMorgan Cuts Banks: Reflections on Its Own Business (JPM, BAC, C, USB, WFC, STI, BRK-A)

J.P. Morgan Chase & Co. (NYSE: JPM) has issued a negative bank research call for the major money center and super-regional banks this morning.  Bank of America Corporation (NYSE: BAC), Citigroup, Inc. (NYSE: C), U.S. Bancorp (NYSE: USB), Wells Fargo & Company (NYSE: WFC), SunTrust Banks, Inc. (NYSE: STI), and others were all hit by the note.  Analysts do not actually cover their own companies, but you can’t really get away from the notion that the analyst downgrade also throws JPMorgan under the bus as well.  Do we dare to make the Warren Buffett connection for Berkshire Hathaway Inc. (NYSE: BRK-A) over its financial holdings ahead of its annual shareholder meeting?

The estimates have been cut for both 2009 and 2010 earnings estimates for these and other banks.  The reasons sound almost like a “ditto” for everything we have seen and heard for recent months, and frankly there doesn’t really seem to be anything new to the call other than how wide and broad this call actually goes.

The cuts are a result of higher credit costs and lower net interest income.  A decline in fee income is also cited, as well as expected credit deterioration with rising unemployment and continued sharp declines in home prices. J.P. Morgan also noted that credit losses should continue to rise and it sees a continuation of the rise in loan loss reserves.

It seems that the concerns of yesterday are the same as the concerns of tomorrow.  Guess where the problems are stemming from…. credit cards, residential real estate, commercial real estate, construction loan, industrial loans, and on.

There is a Berkshire Hathaway Inc. (NYSE: BRK-A) angle to this.  Tomorrow is the annual meeting for Berkshire Hathaway shareholders, and Buffett is a huge investor in many of the large financial stocks.  He is a large holder of US Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC).  He is also a smaller holder of Bank of America Corp. (NYSE: BAC) and Sun Trust Bank (NYSE: STI).  Buffett has certainly noticed the same issues as J.P.Morgan and you can probably count on some of this being addressed this weekend.  The difference here is that our indications so far put Buffett as thinking that the worst has been seen.

So far there is not any huge impact from the call.  JPMorgan itself is up 0.6% at $33.26. Citigroup is up almost 1% at $3.08 and Bank of America is down 1% at $8.83.  US Bancorp is off 1% at $18.02 and SunTrust is up 0.4% at $14.50.  When you see such a mixed bag of reactions in shares on a call, there is usually a simple recognition that investors have: “OK, so what?”

JON C. OGG