Citi bank analyst Keith Horowitz is out with a comment this morning saying that JPM has the extremely manageable exposure in the CDO and LBO loan market. He expects modest yet conservative writedown of 300 mil in Jan Q. He cuts the earning estimate by 8 cents due to the mark down to $1 for next Q. Unlike its counterparts such as Washington Mutual, B of A, C as well as WB, JPM superior risk management and conservative product position in the sub-prime market is helping the firm to fare much better than other financial institutions. In fact, GS and JPM are the two names that our investment group focused since last year, and they have performed the best in among the brokerage and large integrated bank names. I continue to recommend buying JPM and GS aggressively while the share price are down. With economy slowing, I see the money rotation out of the energy as well as tech which had seen large money influx due to investors' not having the alternative sectors to put money amid credit crunch debacle. With financial sectors beaten to death and clearly undervalued at this point, once people accept that the economic growth will slow down and earning in the energy and tech will also get impacted, the money will likely to flow into more conservative value names that include many of the financial names. I am even earning upto the story of Citibank as the valuation is getting compelling. If you want a full report of Citibank, email me via investorhives.com mail. I will send you the report. Below are the short synopsis of his comment.
ABS CDO Writedowns Expected To Be Very Manageable
We Estimate a Relatively Modest $300 mil Mark from CDOs — Unlike BAC or WB, we expect JPM to have a limited mark to market impact from ABS CDO writedowns since it was a very small player in this market. We view our $300 million mark as conservative, and note it includes estimated hits from subprime mortgage exposure that was effectively hedged in 3Q.
Assuming $400 million mark on Leverage Loan Commitments — While still early in the quarter, we are assuming JPM's $40.6 LBO loan book could see a 1% or $400 million negative mark in 4Q based on current market trends. Reducing 4Q estimates. Based on MTM adjustments, we are trimming our 4Q EPS estimate by $0.08 to $1.00.
We believe JP Morgan's strong capital position and improved risk management allow the firm to operate from a position of strength in a tough market, which should allow it to capitalize on the inevitable opportunities that will likely come about as more players are negatively impacted by credit and market headwinds. Reiterate Buy and $57 target price.
current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan, Goldman Sachs, Bank Of America, Wachovia, Comerica, and PNC Financial), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
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