Inside Wall Street: All hail Jamie Dimon
The debate on whether to separate his posts as chairman and CEO at J.P. Morgan is a distracting, unnecessary exercise.
Enough already about splitting the roles of chairman and CEO at J.P. Morgan (JPM). Let's not forget that Chairman and CEO Dimon practically created what is now the very successful and profitable J.P. Morgan, through his ingenious melding and acquisition of companies that he couldn't have pulled off had he been handicapped by the lack of power, and board support, to do so.
As both chairman and CEO, Dimon elevated J.P. Morgan to become one of the most successful global banks worldwide, and it thrived even during the worst financial crisis in U.S. history in 2009. Unlike the other major U.S. banks, JPM didn't ask for a government bailout during the financial meltdown.
Operating in 50 countries with assets of nearly $2.4 trillion, J.P. Morgan has, indeed, become a mighty prize among the nation's financial institutions -- despite all kinds of global economic and financial headwinds. So it isn't surprising that many Wall Street analysts continue to maintain a positive outlook on J.P. Morgan.
"JPM's 10% Tier 1 common ratio and solid management place it in a strong competitive position," says Jason M. Goldberg, banking analyst at Barclays Capital, who rates the stock as overweight. "We see the greatest source of potential earnings upside driven by higher loan growth and capital markets," he adds. He considers the stock, now trading at $50, as undervalued. He has a 12-month price target of $60 a share. And JPM continues to pile up bountiful gains globally, judging by its first-quarter results this year.
Could Dimon have accomplished all that without the benefit of holding both posts of chairman and CEO? It's doubtful that he could have done so in the quick and efficient manner that he has in such a brief period of time.
There is no question that in many other corporate situations, it would be best for a company and its shareholders to separate the two posts -- to avoid managerial conflicts and stagnation in the decision-making process. But in JPM's case the results have been obviously highly positive in spite of certain bungled operations, such as the "Whale" scandal in London, with Dimon holding the dual roles of chairman and chief executive.
"JPM's core businesses look strong to us, with strong mortgage banking fees, a strong rebound in investment banking, and a steady net interest margin," says Erik Oja, equity analyst at S&P Capital IQ. He continues to rate the stock, currently trading at $50 a share, as a buy with a 12-month target of $55.
The stock has been a steady and consistent winner since 2011, climbing from $30 to a 52-week high of $51 in mid-March 2013, in spite of investor apathy towards financial stocks since the financial meltdown. Oja argues three of the five major problems confronting JPM are "well under control."
He notes that the "London Whale" trading loss has been capped at a total cost of $6.2 billion, while the unresolved mortgage repurchase demands, as of March 31, stood at $2.87 billion, vs. a reserve of $2.67 billion. And the bank's net exposure to the troubled economies of the Euro 5 was estimated by JPM at $12.5 billion as of March 31, "which is manageable, in our view," says Oja.
The S&P analyst figures JPM will earn $5.86 a share in 2013 and $5.87 in 2014, assuming a net reduction in shares from a stock repurchase program.
Eric Wasserstrom, banking analyst at investment firm SunTrust Robinson Humphrey, says JPM's "strong earnings power isn't reflected in its current valuation." He notes that while his earnings estimates for 2013-2014 are modestly ahead of consensus forecasts, "our thesis is driven by the expectation of share revaluation." His price target for the stock is $55 a share.
He figures the stock's valuation dropped after the April 2012 disclosure of large trading losses in its CIO book and related risk management and control failures, so he believes the current stock's price doesn't reflect the bank's earnings power and profitability.
Also bullish on JPM is David Hilder, analyst at investment firm Drexel Hamilton, who notes that JPM's operating earnings continue to be slightly above consensus, "with strong trading and improving credit quality." He continues to rate the stock a buy.
So in all, Wall Street sees JPM as fundamentally sound and increasingly profitable – essentially because of, or in spite of Jamie Dimon holding both roles of chairman and CEO.
Gene Marcial wrote the column Inside Wall Street for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.
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