Now Is Not the Time to Insult Dimon

NEW YORK ( TheStreet) -- The media has been making plenty of hay in advance of the nonbinding vote of JPMorgan Chase ( JPM) shareholders on whether or not to split James Dimon's dual roles as CEO and chairman of the board, but voting against Dimon would do nothing for investors.

There have been reports that Dimon has indicated he would consider leaving JPMorgan Chase entirely if the shareholder vote were to go against him.

And what would shareholders gain from Dimon's exit?

Politicians and regulators continue to target JPMorgan Chase, in the wake of last year's "London Whale" hedge trading losses in the company's Chief Investment Office (CIO), which cost the bank at least $6.2 billion.

Even beyond the congressional and regulatory investigations of the London Whale losses, there are numerous regulatory investigations and other actions being taken against the nation's largest bank holding company, including an investigation by the U.S. Attorney's Office for the Southern District of New York of JPMorgan Chase's compliance as a participant in the Federal Housing Finance Agency's Direct Endorsement Program.

JPMorgan has been sued by the attorneys general of Massachusetts and New York for wrongdoing in connection with assignments of mortgage and the use of the Mortgage Electronic Registration System. It has also been operating under regulatory consent orders related to the mortgage industry's foreclosure settlement with federal regulators.

But as the largest U.S. bank holding company operating in the post-crisis environment, following an industry bailout through the Troubled Assets Relief Program, or TARP, it is to be expected that JPMorgan face its share of regulatory and legal hurdles.

Does anyone really think the regulatory and political pressure on the company would ease of Dimon were to leave?

State attorneys general have nothing to lose and everything to gain, whenever they hold press conferences bashing the big banks. That will continue, as long as possible, whether or not Dimon is at the helm of JPMorgan Chase.

The media has given plenty of clout to proxy advisory firms like Glass Lewis and Institutional Shareholder Services, who have both advised shareholders to vote to split JPMorgan's CEO and chairman roles. Those firms have conveniently jumped on the anti-Dimon bandwagon, saying that having a chairman to watch over a CEO would equal better corporate governance.

That didn't work out very well for Enron or its shareholders.

Tom Brown, a bank analyst who manages Second Curve Capital, made an interesting point in a piece on on May 10, suggesting that institutional investment managers should make their own assessments of firms' annual proxies, rather than paying outside services to recommend how they should vote:

"By the nature of their jobs, investment managers are supposed to be independent thinkers," Brown wrote. "I can't imagine an area of the business where independent thinking is more vital than how a manager carries out his role as a fiduciary. It is the sort of thing that simply shouldn't be outsourced by any manager who takes his job seriously. But too many managers unfortunately do outsource it, to these self-appointed, highly paid governance 'experts' with their idiotic 'best-practices' checklists that have little to do with the real world, and their dumb recommendations that can often weaken a company rather than strengthen it."


Another reason that JPMorgan's shareholders big and small should think twice before jumping on the "punish Dimon" bandwagon is that he's already been punished. His pay was cut in half last year as a result of the London Whale losses, even though the losses didn't keep the company from earning a record $21.3 billion, or $5.20 a share.

It's also interesting to look at JPMorgan's stock performance under Dimon, as it compares to its peers among the largest U.S. banks. Dimon took over as JPMorgan Chase CEO in January 2006. From the end of 2005 through Monday's market close at $52.29, JPMorgan's shares returned 58%. Here's how stocks of the remaining "big six" U.S. banks fared over the same period, ranked from the worst return to the best:
  • Shares of Citigroup (C) closed at $51.60 Monday, for a negative return of 88% since the end of 2005.
  • Bank of America (BAC) closed at $13.51, for a negative return of 65% since the end of 2005.
  • Morgan Stanley (MS) closed at $25.07, for a negative total return of 40% since the end of 2005.
  • Goldman Sachs (GS) closed at $158.90, for a positive total return of 34% since the end of 2005.
  • Wells Fargo (WFC) closed at $40.20, for a positive return of 56% since the end of 2005.

So JPMorgan's stock was the best performer, since the end of 2005 through Monday's close. That looks like a fine reason to reward James Dimon, by getting off his back.

Meanwhile, JPMorgan's stock looks like a bargain right now, with the shares trading at a discounted forward price-to-earnings ratio, when compared to the rest of the "big six" club. Here's the entire big six group, ranked from lowest forward P/E to highest, as of Friday's close:
  • JPMorgan's shares at Monday's close traded for 8.8 times the consensus 2014 earnings estimate of $5.94 a share, among analysts polled by Thomson Reuters.
  • Citigroup's shares traded for 9.7 times the consensus 2014 EPS estimate of $5.32.
  • Morgan Stanley traded for 9.9 times the consensus 2014 EPS estimate of $2.54.
  • Goldman Sachs was trading for 10.4 times the consensus 2014 EPS estimate of $15.27.
  • Bank of America traded for 10.5 times the consensus 2014 EPS estimate of $1.29.
  • Wells Fargo traded for 10.6 times the consensus 2014 EPS estimate of $3.81.

JPMorgan's shareholders should vote to allow Dimon to continue running the company. The bank has moved on from the London Whale mess and seems quite unlikely to repeat that mistake. Regulators will continue to scrutinize the company, arguably helping to make it stronger than ever. Some politicians will continue to grab television face time by bashing the biggest U.S. banks, which is to be expected.

Meanwhile, investors confident in the continued U.S. economic recovery are looking at a bank stock bargain, in JPMorgan Chase's shares.

JPM Chart JPM data by YCharts

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

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

>Contact by Email.

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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