Jamie Dimon Steers JPMorgan Through Rough Waters

By Jonathan Berr | October 22, 2013 AAA

When word leaked about JPMorgan (NYSE:JPM) CEO Jamie Dimon’s efforts to negotiate a whopping $13 billion legal settlement with the U.S. government that would resolve the civil litigation involving the sales of mortgage bonds. Investors were not put off in the least.

In fact, some such as Home Depot (NYSE:HD) founder Ken Langone, were singing Dimon’s praises. “The brunt of this misbehavior occurred before Jamie or JPMorgan had anything to do with these two companies,” Langone, 78, told Bloomberg News on October 20. “I’m very, very comfortable as an investor in JPMorgan.”

Whether other investors share Langone’s view will become clear in the coming months. Shares of New York-based JPMorgan are up more than 23% this year, slightly underperforming rivals Goldman Sachs (NYSE:GS) (25%) and Citigroup ​(NYSE:C) (29%). The shares are trading about 15% below their average 52-week price target of $62.33. It is important to note that even though there has been no announcement that a settlement has been reached has been released at this point, media reports indicate that one could come within days. Most analysts expect the stock to outperform the market, a sentiment that will only be bolstered by news of the settlement.

Why?

Wall Street, like nature, abhors a vacuum. When it comes to bad news, the more investors know about it the better, even if involves a huge number such as $13 billion. That’s a lot of money even for JPMorgan, equaling more than half its profit last year. However, thanks to its $205 billion market capitalization, JPMorgan can afford it. Besides, many investors feared that the settlement would be much worse.

Dimon certainly thought this might be the case, which explains why he took the extraordinary step of calling a top aide to U.S. Attorney General Eric Holder four hours before the Justice Department was set to announce civil charges against the bank. He even traveled to Washington to meet personally with Holder, according to the New York Times.

“Complicating matters for the bank, Mr. Dimon is inextricably linked to the settlement,” the paper said. "With the government, he assumed the role of chief negotiator. And at the bank … he remains its chief cheerleader.”

Dimon, who beat back efforts by some shareholders to split the roles of CEO and chairman, has survived the worst financial crisis since the Great Depression, which lead to the ouster of some of his peers such as Bank of America’s (NYSE:BAC) Kenneth Lewis and Citigroup’s Charles Prince. Indeed, Dimon’s stature has grown over time, so much so that the Times dubbed him “The Teflon CEO.”

He is well liked by both his board and the Obama administration where he had been discussed as a possible Treasury Secretary. About the only criticism that Wall Street has for Dimon is that he’s taking the blame for things that weren’t JPMorgan’s fault because the proposed settlement includes securities from Washington Mutual and Bear Stearns, which the company acquired at the behest of the government in 2008.

Dimon isn’t completely blameless for the bank’s woes. The company slashed his 2012 compensation 19% to $18.7 million. Longtime banking analyst Mike Mayo WHEN? told Bloomberg News “Dimon messed up with the Bear Stearns acquisition” only later to call him “the Iron Man of Wall Street.”

That bullish sentiment, though, is not reflected in the value of JPMorgan. Its shares trade at a forward price-to-earnings multiple of 11, ahead of Citigroup’s 10.9 and Goldman Sachs’ 10.6.

The Bottom Line

Dimon has managed to keep his job amidst turmoil that probably would have cost most CEOs their jobs. JPMorgan should continue to do fine even as the economic recovery continues slower than many people would like. The shares are attractively valued and worth adding to most portfolios now. Even better, JPMorgan pays a dividend with a yield of 2.81%, surpassing its peers such as Citigroup and Goldman Sachs.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Analysis
  1. Stock Analysis

    JPMorgan Seeing Strong Credit, But Iffy Growth Momentum

  2. Stock Analysis

    JPMorgan Continues Strong Earnings Run - Analyst Blog

  3. Stock Analysis

    Earnings Preview: Will JPMorgan Beat Again? - Analyst Blog

  4. Chart Advisor

    Traders Fight To Push Corn Prices Higher

  5. Investing

    The Little-Known 'Glitch' That Could Lead To 29% Gains By February 18th

Trading Center