Although I believe the current sell-off in shares of JPMorgan Chase (NYSE:JPM) are overdone and the stock makes for an intriguing longer-term contrarian bet, recent moves by CEO Jamie Dimon show that he is being sucked into the short-term thinking that runs rampant on Wall Street. If such actions continue, it will be worrisome for those of us who want to make a long-term value bet on his company's stock.
The first disappointment came with the news that JPM will be temporarily discontinuing its share repurchase program in the light of the multi-billion dollar trading losses sustained this quarter. Unfortunately for investors, this decision is all too common on Wall Street - buying high and selling low when it comes to stock buybacks.
It strikes me as odd that Jamie Dimon of all people would be inclined to repurchase the stock at $40 and then halt repurchases in the low 30s. This is exactly the time he should be upping the pace of the company's buyback! The trading losses are small relative to the size of the bank's balance sheet (well over $1 trillion of assets), which remains very strong (and not materially weakened if the buybacks continued). JPM will probably start buying the stock again after the shares rebound, which is not in the best interests of shareholders.
Next came the news that JPM was in the process of selling tens of billions of securities that it had made a nice profit on in order to realize gains this quarter - which can offset some of the trading losses incurred elsewhere. This maneuver seems like a gimmick to me. The gains had already been earned, so selling them simply creates an accounting gain to offset realized losses. The move does nothing to boost the value of the company's assets. It is simply cosmetic.
It is a bit worrisome that a CEO of Jamie Dimon's stature is resorting to these short-term moves that do little to create shareholder value. Hopefully after the media storm over the recent trading losses subsides the company can make more rational decisions regarding capital allocation. Doing so would go a long way to making the stock a winner for today's bargain hunters, of which I am one.
Disclosure: I am long JPM.