Analyst Says Break Up JPMorgan

JPMorgan Chase's stock is up nearly 10% in 2010, not bad for a little more than three months work, but one analyst thinks shareholders could do a whole lot better if CEO Jamie Dimon's so-called "fortress" balance sheet was broken up.
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NEW YORK (

TheStreet

) --

JPMorgan Chase's

(JPM) - Get Report

stock is up nearly 10% in 2010, not bad for a little more than three months work, but one analyst following the company thinks shareholders could do a whole lot better if CEO Jamie Dimon's so-called "fortress" balance sheet was broken up.

Richard Bove of Rochdale Securities issued a research note late Wednesday that uses broad strokes to calculate break-up value of the company at nearly $102 per share. The shares were edging higher in midday action on Thursday, rising a dime to $45.42 on volume of 12.2 million.

While Bove admits he has historically believed big banks are worth more in parts than as a whole and that arriving at a solid number is tough without access to internal company data, he also says that he is viewing this analysis as more than just a theoretical exercise.

"What is different this time is that one must now seriously consider the possibility that this could happen," Bove writes. "Congress is adamant that big banks are bad for the nation. The

Obama Administration and the banking regulators agree."

The $102 per share valuation is arrived at by applying varying P/E multiples to Bove's estimated earnings for JPMorgan's individual businesses. For example, by applying a 10x multiple to his estimate for annual earnings of $8.5 billion from the Investment Bank unit, he comes up with a valuation of roughly $85 billion for the business. The $102 per share figure is derived from a total company valuation estimate of $401 billion. JPMorgan's current market capitalization is around $180 billion.

Bove says the inability of banks to deliver solid returns over the long-term is another factor in his argument for a break-up. He notes that shares of JPMorgan, which he sees as one of the best-managed banks in the country, sold at $67 each in 2000 before enduring the ups and downs of the past decade.

"This roller coaster ride reflects the fact that this big bank has no ability to avoid the cycles," he states. "Moreover what is worse is that it's procyclical. It does worse in bad times and better in good times."

So in the face of tighter regulations that he believes are likely to limit the company's future profit potential, Bove thinks JPMorgan should abandon Dimon's

railing against the concept of "too big to fail"

and put various units up for sale.

"Logic would argue to flee not fight," he says, adding later in the note: "Rather than lobbying to maintain status quo it makes sense to break this company apart."

If his estimates of what the various businesses could fetch are accurate, long-term JPMorgan shareholders would surely get on board with Bove's idea but there's no indication the company is thinking along those lines.

Still, the recent success of

Citigroup's

(C) - Get Report

IPO of its

Primerica

(PRI) - Get Report

unit does provide an example of an asset that's now worth much more as a separate entity than it was buried within a big, complex bank. Even Citigroup had to be a bit surprised, as the Primerica offering ended up much bigger than it expected with it selling more than shares than originally envisioned for a higher price than its estimated range. And the stock has thrived in its first few days of trading as well.

JPMorgan will be the first of the big banks to tell Wall Street how it fared in the first quarter when it reports its results for the three months ended in March on April 14. The current average estimate of analysts polled by

Thomson Reuters

is for a profit of 64 cents a share in the quarter on revenue of $26.6 billion.

-- Written by Michael Baron in New York

.