JPMorgan Chase: Bargain Bank Stock Winner

NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM) was the winner among large-cap U.S. banks on Wednesday, with shares rising 2.7% to close at $51.70.

The broad indices ended mixed, as the business media focused on the latest federal "fiscal cliff." Unless Congress and President Obama agree on a new budget, after the fiscal 2014 budget deadline of Oct. 1, many federal agencies will shut down. U.S. Treasury Secretary Jack Lew in a letter to Speaker of the House John Boehner (R., Ohio) on Wednesday said the "extraordinary measures" the Treasury was taking to maintain its borrowing power will "be exhausted no later than Oct. 17," unless the $16.7 trillion federal debt limit is raised.

KBW Bank Index ( I:BKX) was up 0.7% to close at 62.74, with 24 index components ending with gains, except for U.S. Bancorp ( USB) of Minneapolis, which was down slightly to close at $36.76.

Some investors may have been surprised at the strong showing on Wednesday for JPMorgan's shares, following a Wall Street Journal report Tuesday night saying the Department of Justice had rejected a $3 billion offer from the nation's largest bank to settle various federal and state investigations related to sales of mortgage-backed securities. The offer was rejected as "too low for the number of cases involved," according to the report; "the discussions have widened to include other investigations of J.P. Morgan, and the final tally could be larger," according to the Journal's unnamed source.

JPMorgan last Thursday entered into a $920 million settlement with four regulators over the 2012 "London Whale" hedge trading debacle. Also on Thursday, the Consumer Financial Protection Bureau said JPMorgan had already refunded $309 million to 2.1 customers, with the Office of the Comptroller of the Currency also assessing a $60 million fine, spring from the two regulators' combined investigation of its " illegal credit card practices."

Then on Monday, the New York Times Dealbook reported that "the Justice Department and the Department of Housing and Urban Development have discussed the possibility of striking a wide-ranging settlement to conclude many of the looming mortgage investigations from federal authorities and state attorneys general" against JPMorgan. According to the report, a $20 billion settlement had been "discussed at the bank," although "it is not clear who proposed that number."

Despite an estimated $6.2 billion in losses from the "London Whale" hedge trades during 2012, JPMorgan still managed to post its third consecutive record annual profit of $21.3 billion, or $5.20 a share.

Analysts polled by Thomson Reuters estimate the company will set another record for 2013, with a consensus earnings estimate of $22.2 billion, or $5.86 a share.

Investors may also smell a bargain, as JPMorgan's shares are trading at a very cheap valuation of 8.5 times the consensus 2014 EPS estimate of $6.08. This is the cheapest valuation among the 24 components of the KBW bank index. The only other index component trading for less than 10 times its consensus estimate is Citigroup ( C), which closed at $49.26 Wednesday, or 8.9 times the consensus EPS estimate of $5.56.

JPM Chart JPM data by YCharts

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

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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 TheStreet.com 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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