Mutascio presented the stock as his best idea for the remainder of 2013 among large-cap banks on Wednesday.
JPMorgan is trading at a 16% discount to the median large-cap bank on a price-to-earnings basis and no longer trades at a premium on a price-to-book basis.
He attributes some of the discount to concerns that JPMorgan might have to raise additional capital to meet new regulatory requirements that mandate a supplementary Basel III Tier 1 leverage ratio of 6% for the largest banks.JPMorgan will likely have a $15 billion shortfall, according to Mutascio, under the new rules. But the bank, which generated a profit of $21.3 billion last year, should have no trouble generating this capital over time, even if it pays out 50% of its earnings as dividends. The analyst expects the Federal Reserve to allow banks time to meet the requirements. JPMorgan also trades at a discount to many regional banks, thanks to a rally in so-called "asset-sensitive" regional banks on expectations that they will benefit the most from the rise in interest rates. Mutascio believes the recent run-up in these stocks is overdone and somewhat misguided. "The typical asset-sensitive bank may not be as levered to the way the yield curve is steepening because it is not occurring in a parallel shift fashion. Rather, short-term rates seem to be anchored at very low levels by the Fed for a prolonged period of time," says Mutascio. The analyst argues that banks are much more levered to the short-term and as a result will not benefit as much from the rise in just long-term rates. Banks that are poised to benefit in this environment, in the analyst's view, are those that have a lot of liquidity and a securities portfolio with a short maturity schedule. JPMorgan is well placed on both counts, with cash equivalents amounting to 16% of total assets and a securities portfolio that has a shorter duration than most peers.
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