The admission of a $2 billion loss due to improper hedging losses was one thing from J.P. Morgan.  The problem is that Jamie Dimon signaled that the losses could widen out further in the months ahead.  Ultimately the bank will be out of those trades, but these are apparently illiquid enough that the bank cannot simply say “market-sell order” to another trading desk.  J.P. Morgan Chase also has exposure to Europe and elsewhere at a time when BRIC growth has been slowing substantially and while Europe is in meltdown mode.

Wells Fargo is just more of a traditional bank that makes its money off of deposit management, client advisory services, brokerage, loans, and mortgages.  The bank also still trades at a premium to its book value of $25.45 as of March 31, 2012. Its share price is $31.37 after a 1.4% gain today and the 52-week range is $22.58 to $34.59.

J.P. Morgan Chase & Co. (NYSE: JPM) has now joined Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C) in trading at substantial discounts to their prior book values.  As we have said over and over, book value is the ceiling right now rather than the floor. When investors believe that book values will be dropping or that a bank’s earnings power is drained, does book value even matter?  It is not as though the banks could auction off those assets and realize that price overnight.

The book value of J.P. Morgan Chase & Co. (NYSE: JPM) was $47.60 at the end of the first quarter.  That compares to $46.59 the previous quarter and compares to $43.34 in the first quarter of 2011.  J.P. Morgan shares are down 2.6% at $32.62 after two broker downgrades today.

Bank of America Corporation (NYSE: BAC) reported that its stated book value is $19.83 per share, and its tangible book value was $12.87 per share.  BofA trades at $6.88 after a 2% drop today.

Citigroup, Inc. (NYSE: C) reported that its book value was $61.90 on the stated value methodology and its tangible book value was $50.90 at the end of March.  Citi trades at $26.18 after a 0.6% gain today.

Jamie Dimon might still be the strongest CEO in the room, but as of now it is Wells Fargo that is the safest of the big money-center banks.

JON C. OGG

DealBook of the New York Times has reported the news and it cited current and former colleagues as saying the timing of this departure is not known.

• UPDATE 1:52 PM EST: CNBC reported that J.P. Morgan’s comment is that Iksil is still employed at the firm.

Today’s news should really not be a shock. Jamie Dimon survived efforts to split his office of the Chairman and CEO, but the damage to Jamie Dimon is that now politicians and the critics sitting back afar on Main Street think much less of him.

Other departures are cited in the Times around this issue and chances are high that either more firings are coming or are already in the works.

If J.P. Morgan can have stupid oversight procedures and poor risk management, then what does it say for the other participants?

J.P. Morgan shares are down 0.3% at $36.10 against a 52-week range of $27.85 to $46.49.

JON C. OGG

Deutsche Bank AG (NYSE: DB) is down 3.7% today at $40.70.  Banco Santander, S.A. (NYSE: STD) hit a new 52-week low this week and shares are down $0.01 at $6.02 today for its ADR in New York trading.  National Bank of Greece SA (NYSE: NBG) is up only $0.01 at $2.18 for its ADR in New York.

Meredith Whitney told Bloomberg today that first quarter bank results were boosted from one-time issues and that after a very dismal April it will be challenging in the second and third quarters of this year.  It is no wonder that investors are still betting against banks here in the United States when you see Europe in a mess and when you keep getting come-along analyst calls driving things down.

Bank of America Corporation has broken down back under $8.00 today to $7.93 after a 2.8% drop. That marks only the second time being under $8.00 for a lowest print on the day going back to early March and it is down from peak of just over $10.00 back on March 26.  Citigroup, Inc. (NYSE: C) is down less than 1% today at $32.41 in late-day trading and that is down from almost $36.00 as recently as April 18.

J.P. Morgan Chase & Co. (NYSE: JPM) is down 0.7% at $42.91 in late Thursday trading and this was a $46.00 stock at the start of April.  This one has held up better considering that it is one of the two healthiest U.S. banks in America.  Wells Fargo & Co. (NYSE: WFC) is down 0.5% at $33.40 and still at a premium to its book value and down only $1.20 from its 52-week high of $34.59.

The long and short of the matter is that investors are still abandoning Bank of America even though the bank showed only a small exposure in total to the PIIGS in Europe.  The fear is either surrounding more mortgage woes or more European bank woes… or both.

JON C. OGG

So you have some of the negative cases against public private equity shops.  So why is the IPO for Carlyle being considered a win or at worst a mixed bag?  The reduced pricing was deemed to be aiming very low at the offering price because other private equity IPOs have seen the value of their interests (share equivalents) drop after coming public.

The 30.5 million common unit offering priced at $22.00 per unit and that is shy of the $23.00 to $25.00 originally projected.  This While it depends upon which valuation metric you use, Carlyle was thought to be valued at as much as half of rival private equity shop The Blackstone Group LP (NYSE: BX) despite a $6.5 billion market valuation for the rival.  Those valuation comparisons may need some caveats but the idea was to get the shares out at a price that was attractive to Carlyle partners AND attractive to investors.

Kohlberg Kravis Roberts & Co. (NYSE: KKR) and Apollo Global Management, LLC (NYSE: APO) are both relatively new as publicly traded private equity shops worth $3.07 billion and $1.55 billion, respectively.

The last amended filing showed that if the 30.5 million common units were sold without relation to the overallotment option that some 304,500,000 common units would be outstanding if all outstanding Carlyle Holdings partnership units held by existing owners were exchanged for newly issued common units on a one-for-one basis.  We will wait for a new filing to see exactly what the share count is in the coming weeks but that at least offers a read into the full value of the company.

Now Carlyle has to join the ranks of other public companies and open up its books each quarter.  Shares have fluctuated between slightly positive and slightly negative so far on the debut and some 8 million shares having traded with a last print of $22.08 at the 11:30 AM time stamp.

JON C. OGG

The underwriting group just got this one very wrong and left millions upon millions of expansion capital on the table for Splunk to finance its growth. The book-runners of the offering were Morgan Stanley (NYSE: MS), Credit Suisse (NYSE: CS), JP Morgan Chase & Co. (NYSE: JPM) via JP Morgan Securities LLC, and Bank of America Corporation (NYSE: BAC) via BofA/Merrill Lynch. Other managers in the syndicate were UBS Investment Bank, Pacific Crest and Cowen and Co.

Splunk has a software platform that allows companies and large organizations to harness their data via real-time operational intelligence. The company has been growing rapidly and claims over 3,700 customers, which all pay license fees based on index capacity needs. Sales almost quadrupled from 2010 to 2012, with the most recent annual sales at $121.0 million. Even before the IPO came out the stock was given a boost by JMP Securities as it initiated coverage with a “Market Outperform” rating and with a $22.00 price target. The opening price was $10.00 above that! Shares rose another 2.9% to $35.79 on more than 130,000 shares in the after-hours session.

The leading underwriters could hardly argue that they did not do the company a huge disservice here. IPOs that double or come close to doubling on an opening price and that close up higher imply that the underwriters did not know what they were doing. Sure, it gives Splunk a market value of twice what it was told, but it also means that the company raised only half of what it could have raised. Companies come public so that they can finance their growth and to create a liquidity in the company (and a liquidity event for the backers).

Almost all of the shares were sold by the company: 12,507,278 shares were sold by Splunk, and 992,722 came from selling shareholders. To make matters worse, Splunk had granted the underwriters a 30-day option to purchase up to an additional 2,025,000 shares to cover over-allotments. You can bet your assets that the greenshoe option was exercised.

The reason that the 100% premium to the premium pricing is a huge disservice is because it means that money managers, hedge funds and mutual funds who were allowed to buy shares on the IPO suddenly have a double in price on their hands. They took none of the venture stage risk, and they did none of the work to get the company public other than look at the growth rates and say, “Sure, I would like to buy 10,000 to 100,000 shares.” And they double their money overnight.

When you see moves like this, it should really point out that the OpenIPO process from W.R. Hambrecht & Co. might be at least one better way. If this does not give Facebook an even stronger leg to stand on to demand that the underwriters take huge discounts and offer a strong pricing, then nothing else does.

When Splunk first filed for an IPO it was for up to $125 million. The company sold $229.5 million in total gross proceeds (including insider shares) and that is before considering the 2.02 million shares in the overallotment option, which you know have already been exercised by the underwriters. The total implication is that Splunk probably could have raised up to $300 million to $400 million, if you discount the huge opening and closing premiums on the first day.

In 2011, Splunk had the following expenses: R&D $23.56 million; Sales and marketing $74.78 million; and G&A $19.69 million. Had the underwriters priced this one correctly, Splunk could have raised another full year’s worth of operating expenses.

Imagine if you were selling a rent house property and your real estate agent left a full year’s worth of living expenses on the table. At some point in the future, companies coming public should be able to have at least a bit more control over the IPO process.

JON C. OGG

Wells Fargo also reported that its Tier 1 common equity under Basel I increased $4.4 billion to $99.5 billion, with a Tier 1 common equity ratio of 9.95%,  Under current Basel III capital proposals, its Tier 1 common equity ratio was projected to be 7.81%.

Credit quality continued to improve in the first quarter and net charge-offs were $2.4 billion, or 1.25 percent of average loans (versus $2.6 billion or 1.36% in the prior quarter).  The loan loss reserve release was $400 million compared with $600 million in the prior quarter, and now the bank expects continued but slower improvements this year as losses approach what they call a stable and more normalized level.

Wells Fargo trades at a premium to its book value of $25.45.  That level is higher than the prior quarter of $24.64 and compares to $23.18 a year ago.   Shares closed at $34.02 on Thursday and the stock is indicated down 1.4% at $33.55 in pre-market trading.

JON C. OGG

The bank’s return on tangible common equity was 16%, up from 11% in the prior sequential quarter and versus 18% in the prior year. J.P. Morgan also ended the quarter with a Basel I Tier 1 common ratio of 10.4% and it projects that its Basel III Tier 1 common ratio was approximately 8.4% at the end of the first quarter.

The quarter reflected positive credit trends in consumer real estate and credit card portfolios with losses declining and a lower loss reserve by about $1.8 billion.  Jamie Dimon did warn that he still expects to see elevated levels of costs and losses associated with mortgage-related issues for a while longer.

We have highlighted how book value may become more important as 2012 matures and in the years beyond.  The book value of the bank was $47.60 at the end of the first quarter.  That compares to $46.59 the previous quarter and compares to $43.34 in the first quarter of 2011.

J.P. Morgan shares closed at $44.84 on Thursday and shares have indicated up slightly.

JON C. OGG

Huddles were a practice where the firm’s equity research analysts met to provide their best trading ideas to firm traders and later passed them on to a select group of top clients.  The SEC noted that many of the clients and traders engaged in frequent, high-volume trading. The SEC charge also indicated that its analysts could share material and non-public information about upcoming research changes.

Another part of the settlement shows that the firm also agreed to be censured, to be subject to a cease-and-desist order, and to review and revise its written policies and procedures to correct the deficiencies identified by the SEC.

As far as what $22 million really boils down to, it is not that much.  Goldman Sachs had $28.8 billion in revenues and net income from operations was $4.44 billion in 2011, but that was down from $39.1 billion in 2010 revenues and 2010 net income from operations of more than $8.3 billion.

FINRA has also announced today a settlement with Goldman Sachs for supervisory and other failures related to the huddles.

FULL ORDER IS HERE

JON C. OGG

We will be paying extra attention to the money center banks of Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), J.P. Morgan Chase & Co. (NYSE: JPM), and Wells Fargo & Co. (NYSE: WFC).  We will also be watching the bank holdings companies without any bank operations from Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS). On the trust bank side and fiduciary side, there is Bank of New York Mellon Corporation (NYSE: BK), State Street Corporation (NYSE: STT), and also Northern Trust Corporation (NASDAQ: NTRS).

We have shown the most recent closing prices, added in the Thomson Reuters consensus price target objective, and added in a 52-week trading range.  We have then shown the tangible book value and/or the stated book value, depending upon what was available from each bank.  The book values were taken from January press releases as of the end of 2011, but a couple had to be taken from ycharts.com as they did not report their stated book values.  You will see some of the banks still trade at healthy discounts to their book value and to their tangible book values, while others now trade at premiums again.

Read Also: Tempered Expectations Going Into Earnings Season

Bank of America Corporation (NYSE: BAC) recently closed at $8.93, its Thomson Reuters consensus target is currently $9.79, and the 52-week trading range is $4.92 to $13.64. The company most recently noted that its tangible book value per share was $12.95 at December 31, 2011, compared to $12.98 at December 31, 2010. The stated book value per share was $20.09 at December 31, 2011, compared to $20.99 at December 31, 2010.

Bank of New York Mellon Corporation (NYSE: BK) recently closed at $23.34, its Thomson Reuters consensus target is currently $25.67, and its 52-week range is $17.10 to $30.29.  The bank most recently noted that its book value was $27.62 at the end of 2011, down slightly from the $27.79 at the end of the third quarter but up from $26.06 at the end of 2010.  On a tangible book value per share, that figure was $10.57 at the end of 2011 versus $10.55 at the end of the third quarter and up from $8.91 at the end of 2010.

Our review focuses on fresh tempering of expectations from Alcoa, Inc. (NYSE: AA), and caution from SanDisk Corporation (NASDAQ: SNDK) and Cisco Systems, Inc. (NASDAQ: CSCO).  There are also more very fresh concerns regarding the following companies: General Electric Co. (NYSE: GE); J.P. Morgan Chase & Co. (NYSE: JPM); Wal-Mart Stores Inc. (NYSE: WMT); Southwest Airlines Co. (NYSE: LUV); International Business Machines Corporation (NYSE: IBM); AT&T, Inc. (NYSE: T) and Verizon Communications, Inc. (NYSE: VZ); Bank of America Corporation (NYSE: BAC); and also McDonald’s Corporation (NYSE: MCD).

This is not an effort to move towards the panic button, but it is also full of evidence and inference showing that things might be a bit tempered compared to estimates of even two weeks ago.  This tempering may still not kill the expectation that the DJIA will see 14,000 or higher this year.

Alcoa, Inc. (NYSE: AA) has taken a very interesting path here ahead of earnings season.  The company is set to report earnings next week and it is generally the first DJIA component to report earnings each quarter.  For better or worse, that means that investors try to use Alcoa as a benchmark for all major economic companies each earnings season.  The issue goes far beyond Alcoa and far beyond just the base economy companies as one last tempering of earnings expectations for the first quarter of 2012.

While Alcoa is the current focus, we wanted to identify what other DJIA components and/or what other sector leaders have said ahead of earnings season.  It may not be as cautious as many investors were braced for at the start of 2012, but it is far from positive and could act as a drag on the expectations that the market will keep rising.

If you tie in what flash memory maker SanDisk Corporation (NASDAQ: SNDK) warned of lower demand and lower pricing hurting sales and margins.  With it being the largest independent flash maker, this dimmed the hopes of the tech boom continuing and the drop was in all Apple Inc. (NASDAQ: AAPL) component suppliers.  Earlier this week came word from John Chambers of Cisco Systems, Inc. (NASDAQ: CSCO) that government spending was going to get worse before it gets better.

Another concern, which seems to be a lame call rather than an insightful call, came from Moody’s where the credit ratings agency issued a formal downgrade on General Electric Co. (NYSE: GE).  We warned when the ‘negative review” came up last month that the call was unwarranted and/or very late because things have gotten better rather than worse.  We would only expect that this tempered estimates mildly and the company has done what it can to give the all-clear signal in recent weeks and months.