Goldman Sachs had always been the best of the breed of Wall Street investment banks so much so that everybody wanted to be like it. In the aftermath of Lehman Brothers’ bankruptcy, Goldman also got clobbered. It fell from all time high of 250.70 reached on October 31, 2008 to an all time low of 47.41 on November 21, 2008. It also took TARP money and converted into a traditional but its reputation largely remain intact. It still could do not wrong, except that now it had to operate with less leverage hence investors thought that it may not be able to keep its phenomenal growth.
Once the crisis started to subside and when the global market turned around, Goldman’s stock again resumed its upward journey. Almost a year after its all time low, Goldman’s stock had reached 193.60 on October 14, 2009 – retracing between 70.7% to 78.6% of the drop from all time high to all time low.
More than the stock price, Goldman was getting its swagger back and its name was flying high. It was number 9 on Fortune/CNN Money’s 100 Best Companies to work for. Its CEO Lloyd Blankfein was saying that banking is ‘Doing God’s Work‘. The analysts were saying that “Goldman Sachs Should Hit It Big in 2009“. It did – reporting a blockbuster $13,39 Billion profit for 2009.
Then on April 16, 2010 SEC charged Goldman with fraud. The news came out during the market session and Goldman’s stock fell more than 26 point from its intraday high – almost 14% drop. Suddenly, Goldman was no longer the golden boy of the Wall Street. It’s name was sullied and since that day, it is trying to recoup its good name. Sure, it is still ranked the best in the business but more like a big dwarf amongst smaller dwarfs. It stock price has not been flying like before – a year ago on May 12, 2011 it closed at 142.75 and on May 11, 2012 it was 28% below at 102.13.
Is something like this going to happen to JP Morgan?
Before the’08 financial crisis, JPM was also doing pretty good. Its CEO, Jamie Dimon, who came from Citigroup via Bank One Corp of Chicago, had made it strong and profitable. During the crisis, JPM emerged much healthier than other banks thanks to its better risk management practices. Hence it was easily able to absorb Bear Stearns and Washington Mutual.
Even then, like Goldman, JPM stock also took a beating during the financial crisis. From an all time high of 53.25 reached in May ’07, it fell to 15 year low 0f 14.96 in March ’09. Once the global market turned around, JPM became the leader of bank stocks and reached 474.47 in October ’09 – retracing between 78.6% to 89% of the fall from May ’07 to March ’09.
After the crisis, Dimon and JP Morgan have been riding pretty high. It has been posting much stronger results than the competition. Dimon made Time’s 100 Most Influential People list in 2008, 2009, and 2011. His stature was such that he was leading Wall Street’s opposition to Volcker Rule.
When the news of the big bet by JPM’s London Whale came out Dimon called it a tempest in a teapot. For a while, he carried to arguement but then on Thursday May 11th, JPM announced a $2 Billion loss due to that bet. Dimon called it a egg on the face.
Before SEC charged it with fraud in April ’10, Goldman’s stock had just tested a 38.2% retracement and was about to challenge October ’09 high. Since then it has never come close to that high. In fact, it’s price has remained below the downtrend line joining October ’90 high to April ’10 high, when the SEC news broke.
In the last couple of years, JPM has tested the high of October ’09 in April ’10, February ’11 and April ’11. After making a double bottom in November ’11, it was again on its way to challenge that resistance level. Thursday’s announcement has made it take a sharp downturn towards couple of support zones. It gapped down big with a 9% loss.
As Dennis Gartman says, JP Morgan’s risky trading is not necessarily the result of a rogue trader.
“I operate under the old rule that there is never just one cockroach, when ill news comes out there is usually more ill news to follow”
Perhaps, this is all the bad news that may come out – though the chances of that are very low – one thing is clear that JP Morgan and Jamie Dimon have lost littel bit of lustre and credibility. History, and Goldman’s example, say that once a good name is lost the stock price usually suffers for a long time.