Dick Bove Downgrades JPMorgan Chase on 'Government Vendetta'

NEW YORK ( TheStreet) -- Rafferty Capital Markets analyst Dick Bove has downgraded the stock of JPMorgan Chase ( JPM) to a hold rating from buy.

The long-time bull believes investments in JPMorgan likely will be "dead money" in the near term, as headline risks from government and regulatory investigations continue.

The bank is facing six separate investigations from the Department of Justice, four by the Securities and Exchange Commission and three by the Commodities Futures Trading Commission, according to its latest filing.

Bove does not mince words in criticizing the recent lawsuits filed by the Justice Department and the SEC, calling them an outcome of "government vendetta."

He said he sees three consequences to earnings as a result of these lawsuits. Investment banking and payments systems businesses are likely to decline as customers start pulling away from JPMorgan while it is under attack.

"Every time the government attacks JPMorgan some customer is going to be potentially spotlighted," citing the case of EverBright Bank China, which was highlighted in a story about regulators investigating the bank for potential bribery of Chinese officials .

Press reports suggest that the JPMorgan is curtailing its dealings with foreign banks so that it can focus on improving its risk controls, including systems to abide with anti-money laundering requirements.

Meanwhile, litigation costs at the bank are likely to increase. The bank estimated that potential legal losses over and above what it had already reserved for could total $6.8 billion.

Bove said he believes the management will prevail in most actions against it, but that investors are likely to avoid the stock in the near term.

He lowered the price target for the stock to $57 from $60.

JPMorgan's stock has lagged other large-cap banks in recent weeks. Some have speculated the government investigations are a way of pushing the country's largest bank to break up.

KBW analyst Chris Mutascio said he believes the likelihood of a break-up is very low. In a report last Friday, the analyst estimated that the individual business lines are valued at a 30% discount to similar companies.

The discount, according to Mutascio, is large even after factoring in heavy litigation expenses. Plus, he believes legal expenses will decline over a two-year time frame.

-- Written by Shanthi Bharatwaj in 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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