One of the key catalysts (aside from the retarded rumor that JPM would buy Bank of America) that prevented BAC's stock from dropping to a 5 handle yesterday, was JPM's credit upgrade of Bank of America (report here). Sure enough, the reacharound from BAC is as usual missing, with the response from the bank's banking analyst Guy Moszkowski, being to... downgrade JPM. And he did not stop there: he also cut, GS, MS, and C: in other words the entire TBTF brigade. Someone should probably explain to Guy that any sell off in BAC's peers will be doubly acute in the stock of BAC itself, which has now become the whipping boy for the shorts, and the proxy of all that is wrong in the US and European banking system. Then again, with the palpable sheer panic in the corridors of 1 Bryant Park, we doubt anyone at that bank has any idea what they are doing at all.
From the BAC report:
Lowering 3Q forecasts, POs on magnified seasonal decline due to heightened volatility, which has been particularly difficult to manage following S&P US-debt downgrade. Firms likely saw sizable inventory hits; partially offset by better equity trading, particularly in cash, though derivatives challenged given volatility spike. IB weaker as well, as volatility dampened deal appetite. GS PO to $148 from $153, MS to $25 from $26; JPM to $51 from $55; C to $50 from $53.
3Q Highlights: Card credit cont to improve; strong mortgage refinancing activity; cash equity trading resilient in seasonally slow summer, particularly in Retail.
3Q Lowlights: Challenges for FICC, Equity derivatives as volatility spikes; S&P US-debt downgrade; Europe concerns extend to France; IB activity weak across M&A and underwriting. Significant declines in equity, credit markets; recessionary concerns escalate.
Potential catalysts: Germany, France propose viable solutions to contain Eurodebt issues; Europe bank funding concerns abate; resolution to mortgage litigation; better macro indicators, suggesting recession less likely.
JPM: Lowering 3Q11E to $1.07 from $1.30 (cons. $1.24); weaker trading (-$0.03) and IB revenues (-$0.02) drive negative operating leverage (-$0.05). Weaker NIM, lower reserve release (Cards, Mortgage), and PE markdowns drive remainder of EPS cuts (-$0.15), partially offset by stronger mortgage refi activity (+$.02).