More than 20% of the bank's market capitalization had been wiped out, not because of fear of the euro zone breaking up or a sudden slew of mortgage defaults.
The trigger was a terrible trade. The loss has grown to nearly $6 billion, which the bank can readily absorb. Exaggerated market response was due to residual fear from the banking crisis and that worse was to come.
On May 11, Oppenheimer banking analyst Chris Kotowski presciently wrote, "The damage is mainly psychological. It re-arms all the [bank] detractors ... [and] invites people to short the stock and then issue exaggerated loss forecasts. The one fortunate thing is that the fundamental improving trend in virtually all commercial banking indicators remains unbroken. ... JPM has a fortress balance sheet and a $15 billion buyback authorization. If the stock were significantly pressured in coming days, we are virtually certain that JPM would be buying stock, and while this is clearly a major black eye for JPM, we would be doing likewise."
Throughout, Dimon has made sure to be as transparent as possible to mitigate concern that his bank may no longer be a paragon of risk management. So far, little has come out to suggest otherwise.
The stock bottomed near $31 and has rebounded above $36. How one could've profitably invested in this sell-off is explored at the end of this article.
Shares of Europe's leading discount airline, Dublin-based Ryanair, plummeted with the rise of volcanic ash from an Icelandic eruption in spring 2010. "The plume was so massive that it disrupted air travel across much of northern Europe for weeks because of the danger to planes," recalls Cliff Hoover, who co-manages the Dreman International Value and Market Over-Reaction Funds.
The market punished the industry, especially Ryanair, many of whose routes passed through the plume. The stock lost nearly one-third of its value between mid-April 2010 and the end of May when its Nasdaq-listed shares fell to nearly $21 despite no fundamental change to the airline's long-term profitability.
"The market's focus on flight suspension cut valuations from 20 times projected 2010 earnings to just 12 times, which to us made the shares a bargain," explains Hoover. The firm sold out by the end of September when the stock broke above $31. In mid-July, shares were selling below $30.
Not all event-driven sell-offs are buying opportunities. On April 20, 2010, BP's Macondo well in the Gulf of Mexico experienced a catastrophic blowout that killed 11 men and resulted in the country's worst oil spill.
The stock had been trading around the post-financial crisis high of $60. Two months after the accident, shares traded straight down to $27. Even the most pessimistic view of liability probably suggested the sell-off was excessive.