Breaking up JPMorgan could lift its stock price, Goldman analyst says
New capital rules that penalize big banks could add pressure to JPMorgan Chase & Co (JPM.N) to break itself up to boost its stock price, a prominent stock analyst from Goldman Sachs Group Inc (GS.N) wrote on Monday.
While the note did not explicitly argue that JPMorgan should be broken up, it offered extensive analysis of the benefits of a break-up. It is unusual for an analyst at a big bank to delve into that topic about another big bank.
Shares of JPMorgan, the biggest U.S. bank by assets, trade at a discount of about 20 percent to other financial institutions that specialize in its different business lines, such as consumer banking, investment banking and asset management, Goldman analyst Richard Ramsden said in a report.
Investors put less value on JPMorgan's earnings and shareholder equity than they do on more specialized companies that are not as big and do not have such heavy legal and regulatory burdens, Ramsden wrote.
A JPMorgan spokesman declined to comment.
JPMorgan's chief executive, Jamie Dimon, has said in the past that the bank's diverse businesses make it stronger, reduce its cost of funds, and generate additional revenue by selling multiple products to the same customers, such as credit cards to checking account customers.
Ramsden said that even after subtracting such benefits a breakup would still be good for shareholders in most scenarios.
He cautioned, however, that breaking up the company would carry risks of botched separations and could leave four very large financial institutions that would continue to be subject to additional regulation.
On Dec. 9 the U.S. Federal Reserve proposed new rules requiring eight of the largest U.S. banks to hold an extra capital cushion. The rules hit JPMorgan the hardest, raising its minimum threshold higher than its competitors.
While holding more capital should make the bank safer, it also stands to reduce the company's return on equity, a key consideration for investors.
In early afternoon trading in New York, shares of JPMorgan were down 2.8 percent, closely tracking declines in the stocks of other big banks.