JPMorgan's Real "Error" Uncovered: A Simple Story of Wall Street Conflicts of Interest

05/19/22 08:30AM EDT

Editor's Note: Epitomizing the conflicted underbelly of Wall Street research, JPMorgan flipped their entire stance on Chinese equities in just two months time after losing a deal on their capital markets desk. The sequence of events was originally called out by Fat Tail Capital on Twitter.

 A Four-Part Story of Wall Street's Conflicted Interest

In March 2022, JPMorgan deemed China Internet equities 'uninvestable' for the next 6-12 months, downgrading 28 stocks.

JPMorgan's Real "Error" Uncovered: A Simple Story of Wall Street Conflicts of Interest - jpm1

One of these stocks was Kingsoft Cloud Holdings, which JPMorgan's research analyst cut the price target for in half. The only problem? JPMorgan was also serving as the most senior underwriter on Kingsoft's latest stock offering... a deal which they were removed from following their research call. 

JPMorgan's Real "Error" Uncovered: A Simple Story of Wall Street Conflicts of Interest - jpm2

Then just a couple months later on May 10th, JPMorgan backtracked, saying their "uninvestable" call was published "in error.'

Sounds like bullsh*t.

JPMorgan's Real "Error" Uncovered: A Simple Story of Wall Street Conflicts of Interest - jpm3

It gets better -- just 5 days later, JPM completely reversed course and raised a slew of Chinese stocks and ADRs to either Neutral or Overweight, revising their '6 to 12 month' uninvestable call.

JPMorgan's Real "Error" Uncovered: A Simple Story of Wall Street Conflicts of Interest - jpm4

JPMorgan is no stranger to walking back their words to salvage profitable business opportunities. Back in November 2021, it took Jamie Dimon less than 24 hours to say he "regretted" joking that JPMorgan would "last longer" than the Chinese Communist Party. (Asia-Pacific makes up 15% of JPMorgan revenue). Surely, Mr. Dimon received some calls after that interview.

But getting back to the JPMorgan analyst's "uninvestable" call on Chinese equities. It's indicative of a broader issue with Wall Street research, one that every bank is guilty of. Consider the following data from YCharts:

  • 57% of Wall Street ratings are currently "Buy" ratings
  • Almost all of the stocks covered by Wall Street (98%) have a consensus price target above their current stock price.
  • Half (51%) of consensus price targets are more than 50% above their current price.
  • About 20% of analyst price targets imply 100% upside

When you consider these facts, it's not all that surprising JPMorgan would say their call (that Chinese Internet stocks were "uninvestable") was published "in error." Conflicts of interest prevent Wall Street analysts from telling the truth. 

"This is Old Wall Research in a nutshell," wrote Hedgeye Director of Research Daryl Jones. "Don't let their conflicts compromise your portfolio."

Wall Street continues to show its conflicted underbelly. Profit is pursued over truth.

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