Wall Street Shrugs as JPMorgan Trades Lop Off $27 Billion
So here’s one where the headline is straightforward (at least as headlines go), but the article makes no sense. We’re told that the loss by the JP Morgan treasury has led its market value to fall by $27 billion - in other words, that the $2 billion announced trading loss is a signal that the bank’s ability to generate profits is way, way less than they thought it would be, to the extent of $13 less profitability (total, in present value terms, over whatever time horizon Wall Street cares about) for each $1 of announced losses.
Looked at another way, that’s more than a full year’s earnings ($19 bn in 2011).
Looked at another way, that’s 1.2% of assets, for a company that earned only 0.8% on its assets last year.
Looked at another way, that’s 15% of JP Morgan’s capital (defined here as shareholder’s equity), for a company that earned only 10% on its capital last year.
So much for the judgment of the market. “Wall Street” - the people who actually buy and sell shares of JP Morgan’s stock - thinks JP Morgan is worth 15% less than it was worth two weeks ago.
But meanwhile, ”Wall Street” - according to Bloomberg - doesn’t think it’s a big deal. In the article, “Wall Street“‘s views are represented by quotes from some private equity guys and a couple of ex-investment bankers.
I guess I just don’t understand financial journalism.
