Does JPMorgan suffer from Dimon discount?May 7, 2013: 12:31 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
JPMorgan Chase has made it painstakingly clear that the bank is better off with Jamie Dimon serving as both chief executive officer and chairman.
But the market seems to disagree ... which is one reason why the company's board might want to listen to the growing cries from some JPMorgan (JPM) investors to separate the two roles. The bank will have its annual shareholder meeting in Tampa in two weeks.
Shares are trading at a lower price-to-earnings ratio (based on 2013 profit forecasts) than its five biggest rivals: Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS) and Wells Fargo (WFC).
JPMorgan is also trading slightly below book value, the price that a company is theoretically worth if you subtract its liabilities from its assets. Book value is a key metric that many financial analysts look at when evaluating banks.
By way of comparison, the Financial Select Sector SPDR exchange traded fund (XLF), a collection of 83 banks, insurers and real estate companies, is trading at 1.2 times book value. Goldman Sachs and Wells Fargo both trade above book value as well.
And while JPMorgan's stock hasn't been a terrible performer per se -- it's up 10% year-to-date after all -- it has trailed the broader market and other bank stocks. That has to be disappointing, given that Wall Street banks operate in a world where you're only doing well if you are outperforming the competition.
The fact that JPMorgan is lagging instead of leading the bank pack is pretty shocking. In the immediate aftermath of the credit crisis, JPMorgan was thought to be the best of the financials. It traded at a premium to most of its peers.
The rationale was that the bank, despite receiving $25 billion in TARP funds, was in a much stronger position than the other financial giants who also got massive bailouts. It also took advantage of the downturn to get even bigger, scooping up investment bank Bear Stearns and savings and loan Washington Mutual on the cheap.
But JPMorgan is no longer being viewed as banking's star performer and the bloom is off of Jamie Dimon's rose as well.
The London Whale trading debacle, which led to a $6 billion loss, dented the bank's image ... if not its balance sheet. Recent allegations that the bank may have manipulated the power trading markets, which JPMorgan has denied, also have hurt the stock.
Even the Federal Reserve is taking a closer and more skeptical look at the bank. Earlier this year, the Fed merely granted conditional approval to JPMorgan's proposal to buy back stock and raise its dividend. The bank will have to resubmit its capital plan to the Fed later this year. (Goldman Sachs got a similar "yes, but" request from the Fed.) But 15 other banks, including Citi, BofA and Wells, received a green light from the Fed with no strings attached.
So what should JPMorgan do? Is there anything it can do? Shaking up the board might help. And naming a new chairman might convince some shareholders that JPMorgan is taking corporate governance issues more seriously.
But stripping Dimon of the chairman role (he's not going anywhere as CEO unless a dinosaur-sized skeleton is found lurking in the company's corporate closet) may not be a panacea either.
Of the other large banks, only BofA and Citi have split the chairman and CEO roles. Goldman, Morgan and Wells have all outperformed JPMorgan this year despite the fact that their CEO and chairman are the same person.
The problem may not be Dimon, but that JPMorgan has simply proven to be fallible. Investors got too used to the bank outshining its brethren and steering clear of the industry's worst sins.
"JPMorgan Chase is akin to an A student that is now getting B grades. The fallout from last year's London Whale loss seems to increase risk with management, reporting, consistency and brand," wrote CSLA analyst Mike Mayo in a recent report. "In short, we feel that other banks provide greater potential at this time."
Still, one institutional shareholder thinks JPMorgan Chase will get back in investors' good graces as long as the economy continues to improve.
John Snyder, manager of the John Hancock Sovereign Investors Fund (SOVIX), said the recent relative weakness of the stock is more about headline risk than anything truly broken with the company. Snyder noted that some investors may have also been disappointed to see that one of Dimon's top allies, co-chief operating officer Frank Bisignano, is leaving the bank to become the CEO of payment processing company First Data.
But Snyder, who also owns Wells Fargo, Goldman Sachs and Texas regional bank Cullen/Frost (CFR) in his fund, said it's now a great opportunity to buy JPMorgan given that it's a better bargain than its peers and also pays a dividend that yields 3.2%.
"There may be more uncertainty with JPMorgan Chase now but the stock is still cheap and you have to trust that Dimon will do what's right for shareholders," he said.
And by that, Snyder means he thinks Dimon will continue to boost the company's dividend and repurchase more stock ... assuming the Fed lets it, of course.
Whether or not Dimon falls on his sword and gives up the chairman title in the interest of shareholders remains to be seen ... but that seems like a long shot.