Among firms that had IPOs recently, the short interest in Zynga (NASDAQ: ZNGA) rose 35% to 56.6 million. Shares sold short in Groupon (NASDAQ: GRPN) rose 19% to 20.7 million. Both companies have been under attack because many investors believe that they cannot sustain sales in a market in which the number of competitors is multiplying quickly.

Among Web 1.0 firms, the short interest in Yahoo! (NASDAQ: YHOO) was up 23% to 25.6 million. Although the firm has been able to make progress with its Asian assets, its core portal business is in trouble, and it recently replaced another CEO. Shares short in eBay (NASDAQ: EBAY) rose 19% to 16.6 million.

Among other tech stocks, the short interest in Microsoft (NASDAQ: MSFT), which continues to struggle in the critical mobile industry, rose 25% to 87 million. Shares sold short in badly wounded Research In Motion (NASDAQ: RIMM) rose 18% to 53.4 million. The short interest in Oracle (NASDAQ: ORCL) rose 8% to 35.4 million shares.

Other companies with weak prospects hit by short sellers included Chesapeake Energy (NYSE: CHK); shares sold short rose 27% to 85.2 million. There are questions about the CEO’s practice of investing individually in some of the firm’s drilling projects. Shares short in Sprint-Nextel (NYSE: S) rose 20% to 116.7 million. The third-largest wireless company continues to lose ground to AT&T (NYSE: T) and Verizon Wireless.

Short interest in major banks also rose as worries about Europe’s finances and new regulations pushed share prices down. Shares sold short in Bank of America (NYSE: BAC) rose 6% to 150.7 million. The short interest in Citigroup (NYSE: C) rose 16% to 35.5 million. Shares sold short in Wells Fargo (NYSE: WFC) moved higher by 11% to 36 million.

Douglas A. McIntyre

The fall-off of Facebook shares can be traced to a number of things — whether or not they are legitimate. The first is that a some traders believe Morgan Stanley (NYSE: MS) and Facebook decided, at the last minute, to flood the market with stock to raise more money for the social network. There is a rumor that Morgan Stanley cut Facebook revenue forecasts right before the IPO. Major trading issues in the Nasdaq (NASDAQ: NDAQ) system, which delayed orders and rattled investors, might have been another cause. Two days before the IPO, General Motors (NYSE: GM) pulled its ads from Facebook. That seemed to be a bit of revenge, although no one can figure out why. And, perhaps most damaging, analysts attacked Facebook’s inability to make money on its mobile presence, which raised the question of its long-term viability as a growth company.

Zynga faced none of these problems. Its only trouble was being tethered to Facebook because it gets so much revenue from the social network. Facebook’s mobile strategy eventually could effect Zynga, but the balance of the long list of reasons Facebook shares declined really do not apply to the game firm. Zynga‘s shares may have fallen consistently since mid-April, but Wall St. had begun to warm to the company after its recent, better-than-expected earnings. Citigroup (NYSE: C) started coverage of the game firm with a “buy” and a $12 price target.

The Zynga share drop is no different from the reaction traders have when they sell Ford (NYSE: F) because of poor GM earnings, or drop Yum! Brands (NYSE: YUM) when McDonald’s (NYSE: MCD) announces poor earnings. As often as not, two companies in a related sector have very different financial results, for good reasons most of the time. GM has strong sales in China; Ford does not. Yum!’s operations in the U.S. do poorly; America is a stronghold for McDonald’s. Pairings like Walmart (NYSE: WMT) and Target (NYSE: TGT) or Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD) are often not pairs at all. If they really were parallel in almost every way, management skills would make no difference to results.

Zynga and Facebook may trade as a pair, but they are not one.

Douglas A. McIntyre

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

The carnage is particularly severe in a few sectors.

News that JP Morgan (NYSE: JPM) fired its chief investment officer reminded investors of how badly risk is managed at large banks. JPM has taken a $2 billion write-off its London traders took. JPM is down 2.81% to $35.90.Back of America (NYSE: BAC) is down 2% on similar sentiment about risk to $7.39, and Citigroup (NYSE: C) is down 2%. Morgan Stanley (NYSE: MS) is down 3.4%. Its debt will probably be downgraded this summer, according to a number of sources.

Several tech stock were hurt by worry of a slowing economy in Europe, and perhaps Asia. These include Symantac (NASDAQ: SYMC), Micron (NASDAQ: MU), Clearwire (NASDAQ: CLWR), and Nvidia (NASDAQ: NVDA). The sell off in Clearwire is more because of debt than overseas exposure.

Yahoo! (NASDAQ: YHOO) is only up 1.4% on news it sacked and replaced its CEO. Markets probably assume that its trouble goes well beyond a replacement of management. Best Buy (NYSE: BBY) fired its chairman and founder because he helped cover-up a relationship the electronics firm’s CEO has with another employee. Best Buy shares are up less than 1%

Douglas A. McIntyre

The Thursday disclosure of a loss of about $2 billion due to egregious failures in risk management now puts J.P. Morgan Chase in the same league as Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C).  Jamie Dimon has been the most vocal bank executive out there and this is not exactly going to help Dimon in any of his future arguments against more and more bank regulations.

Simon Johnson at MIT’s Sloan School of Management is shown here calling for the possibility of a resignation of Jamie Dimon.  Johnson went on to note that if any other company lost this much then the person responsible would be forced to resign.  He did note that it is not going to happen in banking where regulators move to oust Jamie Dimon.  Johnson is one of the voices calling for the break-up of the big banks

Dimon noted that this trade did not violate the Volcker Rule but it did violate the Dimon Principle.  What happens when your hedges are wrong hedges?  The loss could cost another $1 billion over the next quarter or two as well as the trade was called flawed synthetic credit derivatives which are volatile.

So, back to this call for a Dimon resignation.  Dimon remains one of the top executives out there in banking and in corporate America.  He was recently cleared to lift the common stock dividend and to buy back stock.  Dimon always said that he would buy stock back when its price made sense to do.  A drop of almost 8% down to $37.60 takes this banking stock down to prices not seen since February 16, 2012.  The dividend-adjusted closing price at the end of 2011 was $32.80.

There is another call for Dimon’s role of Chairman and CEO to be split as well.  AFSCME sent out an email noting, “After JP Morgan’s Jamie Dimon lost $2 Billion in risky trading, today, AFSCME issued a renewed call for the shareholders of JPM to end Dimon’s reign as Chairman and CEO and adopt an independent board chair.”  In short, the call is keep Dimon on as CEO but to bring in a new Chairman of the Board that is independent of the company.

Congressman Barney Frank (co-author of Dodd-Frank) has publicly said, “JP Morgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them. The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today.”

Jamie Dimon may have taken a body blow here, but the notion that this will cause his resignation seems very unlikely.  The next risk is the pending downgrade of more than 100 of the top global banks from Moody’s.

FBR was one of the firms which downgraded J.P. Morgan shares this Friday and the target was taken down to $37 from $50 previously.

JON C. OGG

Gasoline Prices Fall

The widely followed Lundberg Survey showed that gasoline prices fell 6.75 cents to $3.8452 a gallon for the average price of regular, based on national samples. The data for was the period that ended May 4. After a brief pause, the cost of gas has begun to move lower again. It likely will continue. WTI dropped briefly below $100 last year. Most economists think that the fight over austerity in Europe will go on for months, as many nations slip further into recession. And Greece could still leave the European Union, which would likely drive it into depression. The fall-off in gross domestic product among many European nations is expected to hurt China’s export machine, which is another huge consumer of crude.

U.S. to Cut Stake in AIG

The U.S. government will cut its stake in AIG (NYSE: AIG) again. It plans to reduce its total piece of the company to 63%. The cost of the bailout to taxpayers have been calculated to be as high as $180 billion. Many experts believe that amount will never be recouped. However, Tim Massad, the U.S. Treasury assistant secretary for financial stability, said “We remain hopeful that taxpayers will ultimately recover every single dollar invested in the company, which is something few would have expected during the depths of the financial crisis.” At this point, that seems unlikely, based on the price of AIG’s stock. The Federal Reserve and Treasury supported an AIG bailout in 2008 because its huge number of relationships with other financial firms would have caused catastrophic ripples through the credit system. The Treasury will sell the stock at $30.30, about 5% below where it has recently traded. AIG may buy back some of the shares on its own.

Barclays Online Bank

Barclays, the UK-based bank, has decided to move into the U.S. online bank business. The move is a mystery, given the competition from American banks, brokers and financial advisors. Barclays believes that being in the credit card industry gives it a platform to add customers. However, competitors Citgroup (NYSE: C), Wells Fargo (NYSE: WFC), JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) have many more card members. The “big four” American banks also have gathered deposits for years through their branch systems. They have successfully migrated many of those customers to Internet-based retail bank platforms. Barclays has little leverage to make this initiative successful.

Douglas A. McIntyre

But, competitors Citgroup (NYSE: C), Wells Fargo (NYSE: WFC), JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) have many more card members. The “big four” American banks have also gathered deposits for years through their branch systems. They have successfully migrated may of those customers to internet based retail bank platforms. Barclays has not leverage to make its initiative successful.

Douglas A. McIntyre

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

The WSJ reports that the Fed also rejected a plan proposed by Citi to buy back $8 billion of shares. The Fed’s opinion is  an insult as it is based on a point of view that Citi will not regain significant financial health for some time.

WSJ writes that:

The capital plan that Citigroup Inc. submitted to the Federal Reserve earlier this year included the possibility of $8 billion in stock buybacks, people familiar with the situation said.

The size of the request, which is far bigger than some analysts had expected, might have hurt Citigroup’s chances of winning Fed approval. Citigroup officials were stunned by the Fed’s rejection in March of their proposal.

No one should be surprised if the revelation hurts Citi’s shares which are up 30% during the year so far, but have sold off lately.

Douglas A. McIntyre

The bank talked about negative valuation adjustments related to changes in the company’s credit spreads of $4.8 billion pretax, or $0.28 per share.  BofA also claims that its total net exposure is only $9.8 billion to Greece, Italy, Ireland, Portugal, and Spain.

A year ago the bank reported earnings of $2.0 billion, or $0.17 per share on revenue of $27.1 billion. The bank reported that if you were to exclude the valuation adjustments from both periods, revenue would have been down by about 3% to $27.3 billion in the first quarter.

Bank of America noted that it increased its Tier 1 common equity ratio by 92 basis points from the prior quarter and that its liquidity is at record levels. The bank’s Tier 1 Capital Ratio was 13.37% and its Tier 1 Common Equity Ratio was 10.78% at the end of the first quarter. The improvement in credit spreads results in a negative adjustment to earnings this quarter.

Today’s earnings results are difficult to measure by any real benchmark compared to other bank reports because of the items.  Still, the bank is talking about positive momentum being seen in its operations.  CEO Brian Moynihan said, “Our strategy is paying off: With the economy steadily improving and because of the work we have done to strengthen and simplify our company, we saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year.”

Bank of America reported that its stated book value is $19.83 per share, and its tangible book value was $12.87 per share.  The bank previously said 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 America shares are actually trading up over 5% at $9.17 or so in active pre-market trading this morning after closing at $8.92 on Wednesday.

The move is also lifting shares of the rival challenged money center bank of Citigroup, Inc. (NYSE: C) is up by 1.5%.  Even the wild and leveraged Direxion Daily Financial Bull 3X Shares (NYSE: FAS) is getting a boost.

JON C. OGG