The column explicitly observes that without this disclosure, investors are going to assume the worse and require a higher rate of return to compensate for risk (as reflected in a lower stock price).
Banks are the last place to be in a financial storm. So it's up to big bank CEOs to assure investors their firms won't be swamped by crises brewing on both sides of the Atlantic....
But to be meaningful, they need to go beyond the usual generalities related to risk exposures...
Mr. Dimon previously has tried to put a figure on a European calamity. Writing in his annual letter to shareholders, he said in a worst-case scenario involving the so-called Piigs—Portugal, Ireland, Italy, Greece and Spain—J.P. Morgan "could lose approximately $3 billion, after tax."
That figure needs updating. But Mr. Dimon shouldn't stop there.
Any European banking problems likely will hurt Germany and France, where J.P. Morgan at the end of 2010 had total exposure of about $300 billion. J.P. Morgan should factor that into any update, as well as give more timely country exposure disclosures; it does so only annually.
Citigroup and Bank of America, which report results Friday and Tuesday, respectively, provide quarterly updates. Yet they, too, need to put more flesh on their risk bones, especially Citi.
The bank didn't report any sizable Piigs exposure at the end of the first quarter, while total exposure to France and Germany was $163 billion. But it did have the highest level of foreign government-bond holdings relative to its tangible common equity, at 139%. J.P. Morgan's was 91% and BofA was at 36%.
And the banks shouldn't stop at Europe. The U.S. is a potential danger, too, with Moody's on Wednesday placing the country's top-notch rating on review for possible downgrade.
Bank of America at the end of the first quarter had the largest holding of Treasurys relative to tangible equity, at 83%, with Citigroup following at 52% and J.P. Morgan at 29%. Those exposures should be manageable because it is unlikely government bonds would suffer more than temporary losses in a default over the debt-ceiling standoff.
Again, though, investors need more information.
Banks may be wary of getting too specific, ... But if investors are left in the dark, bank stocks will pay the price.