Do Not Vote Out Jamie Dimon: Analysts

NEW YORK ( TheStreet) -- Shares of JPMorgan Chase ( JPM) will suffer if investors vote to split the chairman and CEO roles currently held by Jamie Dimon at the May 21 annual meeting next week, according to analysts.

A possible exit by Dimon, who has successfully steered the bank through the financial crisis and has a strong track record, could destabilize operations, they argue.

And the question of who will be equal enough to the task of running the country's largest and most complex bank will also weigh on the stock.

CLSA analyst Mike Mayo believes shares may fall as much as 10% if the vote goes in favor of an independent chairman. While the bank enjoys a premium to its peers given its superior returns, "there would be increased concern about the sustainability of those returns with the degree of change," in management, Mayo wrote in a note Monday. He noted the bank has already seen excessive turnover in management over the past year.

"While the outcome of next week's vote remains unclear, it is our view that a vote to split the roles would be negative to JPM shares," UBS analyst Brennan Hawken said in a report Wednesday. "Therefore, we would be surprised if shareholders willingly decide to risk destroying value this way."

Votes for the proposal to split the roles are currently running slight ahead of 40% it received last year, according to a report by the Wall Street Journal.

At the current run rate, Dimon could still get to keep both his titles. Still, the recommendations by two influential proxy advisory firms, ISS and Glass Lewis, threaten to sway the vote.

Sell-side analysts are in favor of Dimon as CEO, but admit that they cannot rule out the possibility that the vote could go against him.

Dimon's reputation as one of the savviest risk managers on Wall Street was tarnished by the multi-billion dollar "London whale" trading losses last year. His image has not yet been restored since the debacle, although the bank's financials have barely been dented and continue to notch new records.

Federal investigations, Senate hearings and a wave of recent regulatory actions have highlighted lapses in controls within the company. Dimon has, however, said he has worked to overhaul risk management practices and has replaced the management directly responsible for the losses.

The vote is non-binding, so there is a chance the board could ignore the vote and maintain status quo. The board's presiding director Lee Raymond and chairman of corporate governance William Weldon wrote a seven-page letter to shareholders stating their support of Dimon in his dual role.

Analysts at Credit Sights, however, believe the board would not ignore the vote "as it would garner more negative attention by the media, regulators and political forces."

But if the board does decide to split the roles, it remains to be seen who they would appoint as chairman and whether that person would work well with Dimon. Worse, what if Dimon quits, as reports suggest he might do?

Analysts believe Mike Cavanagh, co-head of the investment bank and former CFO, would be a likely successor. Matt Zames, COO and Gordon Smith, head of the consumer and community banking unit are other names that have been floated.

But the appointment of any of these names in the CEO position might be "3 - 4 years too soon" according to CLSA's Mayo. Most of the current management are old hands at JPMorgan, but have held their current roles for a relatively short time.

Some argue there is even a "Jamie Dimon premium" built into the stock. The bank's strong track record at execution has allowed it to continually delivery superior returns on shareholder equity.

Despite these concerns, some analysts believe the stock is a buy.

Evercore Partners analyst Andrew Marquardt believes there is no "Jamie premium," noting that the stock still trades at a cheap multiple for relatively superior returns. "While a split makes sense from a corp governance perspective broadly, we suspect there is a low probability of such happening given non-binding vote, Board support, and most importantly, looking at fundamentals where JPM clearly weathered last financial crisis better than most, results continue to outperform, and response to whale trade/CIO issues has been strong in terms of swift acknowledgement, accountability, and resolution," he wrote. "Regardless of outcome, we remain positive on JPM shares givenfundamentals, deep management bench, and valuation."

Credit Sights analysts expect the spreads on JPMorgan bonds to weaken if Dimon exits following an unfavorable vote. Still, they said they view any weakening in spreads as a buying opportunity, as it believes that the bank's strong franchise in consumer and corporate banking is sustainable.

Goldman Sachs earlier this week said the stock's weakness in light of recent uncertainty presents a good buying opportunity. Historically, the analysts noted, JPMorgan shares have tended to outperform even before the uncertainty is resolved.

Shares of JPMorgan were trading up 1.8% at $51.11 Wednesday afternoon.

-- Written by Shanthi Bharatwaj New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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