Breaking up JPMorgan Chase & Co. could make billions of dollars available to the economy and be a boon to the bank's own shareholders, according to one bank analyst.
Christopher Mutascio, a managing director with the investment bank Keefe, Bruyette and Woods in Baltimore, suggested in a research report on Friday that JPMorgan's value might be 30 percent higher if it were broken into pieces. Rather than cowering at the prospect of the nation’s largest bank by assets being dismembered, Mustacio suggested that shareholders might greet the possibility with calls of, “Go ahead, make my day.”
“Broken up, JPMorgan is worth even more,” than its current value, Mutascio told The Huffington Post.
Mutascio’s report suggests that if JPMorgan were broken into four units -- traditional banking, investment banking, asset management and private equity -- the market value of those segments could total $255.7 billion -- a 29.9 percent premium over Thursday’s market valuation of $196.9 billion. The move also would unlock some $19.5 billion that the bank is setting aside to satisfy capital reserve requirements for so-called too big to fail banks. That's money the bank might make available for lending.
In an interview with HuffPost, Mutascio made clear he is not advocating for JPMorgan to be broken up. In any case, he said he thinks the possibility is very remote.
The analyst, whose firm conducts business with JPMorgan and makes a market for the bank’s securities, said he was inspired to conduct the theoretical exercise as way to show that shares of the megabank are undervalued. It doesn’t make much sense for a bank whose underlying units have such inherent value to be trading at current levels of about $52 per share, Mutascio said, unless accounting for what he sees as the market’s punishing attitude toward JPMorgan’s legal troubles.
“That unknown is forcing the price down, I might add, in a very similar way as it did with Bank of America” in 2012, Mutascio said.
JPMorgan’s current legal troubles include 13 investigations by federal regulators looking into charges ranging from manipulation of energy markets to hiding large losses during the “London Whale” debacle in early 2012. The bank also faces a barrage of lawsuits from individuals and its trading counterparties. The legal uncertainties have taken their toll on JPMorgan's stock, with shares trading at 8.65 times the bank's earnings over the past 12 months. Similar institutions trade at multiples that are 25 percent to 40 percent higher.
“Legal expenses at JPMorgan are not going to take the bank down,” Mutascio said “They’re not. Legal expenses at JPMorgan are not going to prevent the bank from making money.”
And even if legal action resulted in the breakup of the bank, a highly unlikely result, Mutascio said “that possibility wouldn’t be a reason to downgrade the bank.”