Bank One's Dimon Fails to Persuade Analysts at Conference

Is Jamie Dimon losing his luster?

Bank One's (ONE) CEO failed to dazzle analysts at an investor conference Thursday, prompting a flurry of negative comments and estimate cuts Friday. After months of supporting his turnaround plan, investors and analysts are increasingly wondering where the bank will find growth once its cost-cutting plans are complete.

Often some quality face time between a company and the analysts who cover it prompts some goodwill. But not this time. Mike Mayo at Prudential, Sean Ryan at Fulcrum Global Partners and Andy Collins at U.S. Bancorp Piper Jaffray issued reports this morning showing they aren't budging from their sell ratings. Similarly, Michael Plodwick at UBS Warburg reiterated a hold rating, while Lori Appelbaum at Goldman Sachs retained a market perform.

Though Dimon gets his due for installing a strong management team, purging the balance sheet of substandard loans and cutting expenses, observers are starting to worry about stagnant core revenue growth, particularly in the company's First USA credit card division.

"We have heard a lot about revenue growth potential as a concept, but there was very little hard evidence of revenue growth occurring within the Bank One franchise," Collins of Piper Jaffray wrote in a research note Friday. Collins continues to believe it will take "much longer than originally anticipated to turnaround this broken franchise." He went on to say the lack of revenue growth was "evident across the board," including in Bank One's retail, corporate, middle market and credit card divisions. (His firm has underwritten for Bank One recently.)

To his credit, Dimon, a former Citigroup executive and protege of Sandy Weill, has been candid about the severity of credit problems and has not been shy about dipping into profits to bulk up the loan-loss reserve, which is essentially a financial cushion to cover the cost of loans that go bad.

Banks are often conservative about building the reserve because it means taking a hit to the bottom line, but Dimon has been aggressive about selling off shaky loans and making sure the bank has adequate reserves. For instance, in the latest quarter the bank purged the balance sheet of $232 million in problem credits, a move that resulted in a $42 million charge-off. And in the first quarter, when the bank caused a few jaws to drop by reporting a steep loss, Dimon called the numbers "absolutely unacceptable" and said it would probably be the "last messy quarter."

Given that credit costs are turning out to be only part of the problem, what was seen as refreshing candor is turning out to have limited value. A number of analysts think the stock is overvalued, given the lack of earnings visibility and other risks. As Collins points out, even excluding the card business, the remaining banking franchise is selling at a lofty 12.6 times next year's earnings.

Bank One rose about 13.5% from the start of the year through the end of May. Since the start of June however, the stock has declined 5%. Friday, Bank One was lately edging up 57 cents to $38.04.

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