Lioness Associates, Inc.

Economic & Corporate Risk/Yield Reports

October 31, 2012  -- JP Morgan Chase Risk/Yield Update for 2012

Refer to Reading Graphs for information on interpretation of the graphs.

The JPM 2012 Delta Core/Transient graph indicates that while Risk is decreasing for JPM, there is not a corresponding momentum into yield — rather, it seems to be arriving at an equilibrium point.  This suggests that at least for the rest of the 2012 year (and maybe more), the executive team may concentrate on cleaning up the management structures that led to the "London Whale" trading loss and implementing oversight points to ensure that this same scenario does not occur again. This team is under a microscope and they likely know it and will take all steps necessary to avoid missteps. The impact of new banking regulations may also not be quite fully understood when it comes to implementation and could cause a drag on the company.

Better words to describe the current state might be
the wind has come out of the sails and the company needs to regroup.  Having said that, it doesn't appear that new investors will shy away or existing investors will get nervous about owning this company. 


May 11, 2012 -- JP Morgan Chase Risk/Yield for 2012

The first news stories were appearing in early April (refer to article) about a JP Morgan Chase employee aptly nicknamed the "London Whale" who was making large positions in the derivatives market.  The "uncovering" of this employee's trades forced liquidations at a disadvantage and this liquidation is still in progress.  The full extent of the damage is not known and will only be guessed at until the liquidation is complete.

Looking at the JPM Delta Core/Transient 2012 graph, the Delta Core spends most of the year in "risk" with only a brief period in "yield" that occurs in the June and December period.  The June uptick into "yield" is relatively insignificant and while it might have investors feeling better it is not likely an opportune time for new investors looking for long-term investments.    

It's possible that the full extent of the damage will not be known until the next earnings due in July 2012.  We'll revisit this company at that time.

       JPM Delta Core/Transient 2012 graph
      Legend: black line = Core, green line = Transient; above 0 = Yield, below 0 = Risk

     JPM Risk/Yield 2012 graph
     Legend: Dark Grey above 0 = Yield Transient, Light Grey above 0 = Yield Core,
                    Light Grey below 0 = Risk Transient, Dark Grey below 0 = Risk Core

Disclosure as of 5/11/2012 - JP Morgan Chase (JPM) is not part of our portfolio at this time.