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'Better Names to Own' Than JPMorgan: FBR

NEW YORK ( TheStreet) -- FBR analyst Paul Miller wasted no time on Thursday in downgrading JPMorgan Chase (JPM - Get Report) following CEO James Dimon's announcement of a $2 billion second-quarter trading loss.

Saying there was "little clarity into and a lot of uncertainty surrounding JPMorgan's future earnings," Miller cut his rating for JPMorgan to market perform from outperform, and lowered his price target for the shares to $37 from $50.

Although he believes "this event is largely isolated to JPMorgan and its internal controls," Miller said the announcement would "certainly be fodder for the Washington, D.C. crowd pushing for the Volcker Rule and will certainly increase the headline risk for JP Morgan and the industry."
JPMorgan Chairman and CEO Jamie Dimon

The political reaction against banks and their hedging activities began Thursday, with a press release from Sen. Carl Levin (D-Mich.), who said that "the enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making," and that "today's announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets."

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Miller said that "while JPMorgan's core business lines remain strong and intact, we worry about the potential risk the credit derivatives portfolio poses to earnings going forward," and that "the company could hold off on repurchasing shares in the near term while it gains a better understanding of potential losses as a result of this portfolio."

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The analyst therefore believes "that there are better names to own in the near-term such as Wells Fargo (WFC - Get Report), U.S. Bancorp (USB), PNC Financial Services Group (PNC - Get Report) and Morgan Stanley (MS - Get Report), all of which FBR rates outperform.
  • Shares of Wells Fargo closed at $33.19 Thursday, returning 22% year to date. Based on a 22-cent quarterly payout, the shares have a dividend yield of 2.65%. The shares trade for 1.9 times tangible book value, according to Worldscope data provided by Thomson Reuters, and for nine times the consensus 2013 earnings ratio of $3.68 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $3.28. Miller's price target for the shares is $39
  • Shares of U.S. Bancorp closed at $31.91 Thursday, returning 19% year to date. Based on a quarterly payout of 19.5 cents, the shares have a 2.44% dividend yield. The shares trade for three times tangible book value, and for nine times the consensus 2013 EPS estimate of $3.01. The consensus 2012 EPS estimate is $2.77. Miller's price target for the shares is $36.
  • Shares of PNC closed at $65.53 Thursday, returning 15% year to date. Based on a quarterly payout of 40 cents, the shares have a dividend yield of 2.44%. The shares trade for 1.4 times tangible book value, and for 9.5 times the consensus 2013 EPS estimate of $6.89. The consensus 2012 EPS estimate is $6.19. Miller's price target for the shares is $68.
  • Shares of Morgan Stanley closed at $15.60 Thursday, returning 4% year to date. Based on a quarterly payout of a nickel, the shares have a 1.28% dividend yield. The shares trade for just 0.6 times their reported March 31 tangible book value of $27.37, and for 6.5 times the consensus 2013 EPS estimate of $2.42. The consensus 2012 EPS estimate is $1.43. FBR analyt Stephen Stelmach's price target for Morgan Stanley's shares is $30.

Miller lowered his second-quarter earnings estimate for JPMorgan Chase to 93 cents a share from $1.20, while lowering his full-year EPS estimate for 2012 to $4.42 from $4.83. The analyst also lowered his "FY13E GAAP EPS from $5.70 to $5.55 and operating EPS from $5.80 to $5.65 due to lower buybacks in FY12."

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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JPM $63.21 -0.61%
MS $27.06 -0.62%
PNC $87.78 -0.46%
UBS $17.26 0.61%
WFC $50.05 -0.71%


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