JPMorgan's $5 Billion Raise Swings FAS/FAZ (JPM, FAS, FAZ)

Jamie Dimon really hates the TARP and he wants out from under it.  He’s said how being forced to take the TARP money has allowed JPMorgan Chase & Co. (NYSE: JPM) and others to face endless scrutiny and vilification, and he has noted how certain limitations could hurt many companies in their ability to compete with peers who are not under TARP monies and under TARP restrictions on pay and incentive.  It seems that the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) will have to deal with the swings of one more large offering as JPMorgan looks to be the largest component of these two Triple-Leverage ETF’s.  We noted some of the same when these ETF’s had to deal with preferred redemptions, although JPMorgan has not yet addressed that issue.  Today, JPMorgan announced today that it intends to raise $5 billion in common equity to satisfy a supervisory condition that the largest bank holding companies redeeming TARP preferred capital demonstrate access to the equity capital markets.

JPMorgan did note that approval to repay the TARP funds has not been granted, but the company believes that upon completion of this capital raise it will have satisfied the criteria for fully redeeming the TARP preferred capital.  More importantly, it said it expects to do so before the end of June.

As far as what it sees as Tier-One Capital, it sees approximately $118 billion or 9.3% and Tier One Common of approximately $93 billion or 7.3% at the end of the second quarter, after the capital raise and the TARP preferred capital redemption.

It expects to maintain extremely strong capital ratios, even in the event of a more highly stressed environment over the next two years.

As far as what the official statement and stance on the TARP money is, that is different than the real feelings.  The pres release noted, “JPMorgan Chase believes that redeeming the TARP preferred capital is in the best interests of the country and the company, and that these funds can be used by the Government for other critical purposes. JPMorgan Chase also reaffirms its commitment to continued robust lending to consumers, small businesses, non-profits, municipalities, corporations and others.”

What Jamie Dimon didn’t say in the release but has all but said is, “I didn’t need it and didn’t want it.  They made me take it.  They are hurting my business, and I am sick of them being able to meddle in my day to day operations.”  If Dimon was a song writer, he would sing, “Take this TARP and shove it.”

Day traders and ETF investors need to pay attention here.  If JPMorgan’s common stock swings too far in either direction, be sure to look for how this can exaggerate a move in the FAS/FAZ triple-leverage ETF’s.  JPMorgan looks to be a significantly higher portion of the base index the ETF follows, which is the Russell 1000 Financial Services Index.

JPMorgan closed down 2.1% at $36.11 today.  Shares were briefly trading up less than 1% from the closing bell levels, but now shares are trading around $35.98 in the after-hours session.

Jon C. Ogg
June 1, 2009