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I'd just settled in at the ballpark with a former colleague of mine when he said, "Your ol' pal Jamie Dimon sure stepped in it, didn't he?"

Inelegant, but mostly accurate: Mr. Dimon, chairman and CEO of JPMorgan Chase & Co., has presided over a trading fiasco that will produce untold billions of losses and that has already cost billions more in market capitalization. An embarrassing situation indeed for the leading voice pushing back against a wave of U.S. financial regulation.

But "my pal"? Not so much – it's not as if Mr. Dimon and I exchange Christmas cards or winter together in Aspen. Instead, what my former colleague is referring to is my admiration for Mr. Dimon. Too many CEOs blather generalities or refuse to admit their companies' mistakes; having interviewed Mr. Dimon in the past, I found him refreshingly different.

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So while many think Mr. Dimon's star has lost its lustre, and his company has gone from the bank that could do no wrong to the gang who couldn't shoot straight, I'm still inclined to bet on Mr. Dimon – and JPMorgan Chase shares, now off roughly one-third from their 52-week high.

I don't mean to minimize the company's recent misfortune. The trading activities, conducted out of the bank's risk-management operation, seemed designed for speculative profit instead. The bank could have losses of $2-billion (U.S.) – maybe much more – on ill-timed bets that credit conditions would improve.

Regulators have pounced, shareholders are suing. It just wasn't supposed to happen at a bank that reputedly did everything right in the 2008-09 global credit crisis.

Between the trading fiasco and the deep pessimism about the U.S. and global economies, JPMorgan now trades below its tangible book value. That puts it closer to misfits such as Bank of America Corp. and Citigroup Inc. than to consumer-focused big-bank leaders such as U.S. Bancorp.

Its forward price-to-earnings ratio, per Standard & Poor's Capital IQ, is just over 7 – behind Bank of America and the bailed-out Regions Financial Corp., and only ahead of Citigroup.

While it has suspended a massive share buyback operation, it retains its annual $1.20 dividend – which now produces a yield of 3.8 per cent.

In terms of the known and estimable impact, the market has overreacted. Analyst consensus estimates for JPMorgan's 2012 earnings have been cut by about 11 per cent since the revelation of the trading scandal, according to Bloomberg; the bank's shares have fallen more than 20 per cent.

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More perspective: If the trading losses come in at $5-billion, they still won't be as large as JPMorgan's first-quarter net income of $5.4-billion. In the past 12 months, the bank has posted $17.4-billion in profit. Shareholders' equity topped $180-billion at March 31. Banks that are too big to fail are big enough to take a hit this size.

Of course, it's hard to blame investors for wondering whether the damage will stop at what's already been disclosed. Mr. Dimon was right when, after first calling rumours of trading losses a "tempest in a teapot," he backtracked and called the strategy "flawed, complex, poorly reviewed, poorly executed and poorly monitored."

Analyst Chris Kotowski of Oppenheimer & Co. Inc., after listening to that conference call, said Mr. Dimon sounded "clearly embarrassed and furious." While some analysts have cut their target prices and placed "hold" ratings on JPMorgan because of a "lack of visibility," Mr. Kotowski says he believes "the incident has a bigger impact in adverse publicity and investor trust than in financial terms." He's sticking with a $58 price target – a nearly 80 per cent gain from today's levels in the low $30s – based on 9.6 times his fiscal-year 2013 estimate of $6.01.

My sense of Mr. Dimon is that few things are more important to him than running an exceptionally competent, top-performing bank. I think he's now deeply motivated to earn that description again. I don't think he or JPMorgan will "step in it" again – and as long as the market prices the shares as if they will, there seem to be profits to be had.

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About the Author
Business and investing reporter and columnist

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers. He has also worked at the Wall Street Journal. More


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