Jamie Dimon emulates Warren Buffett in his 38-page letter to JPM shareholders -- as argument for why JP Morgan Chase is exceptionally good value for long term investors, still bruised from the collapse of bank shares in the 2008 meltdown. Buffett talks about how BRK intrinsic value is far greater than book value; Dimon goes on about how he is going to increase tangible book value by 15 to 20 percent a year.
I was able to discern about eight solid reasons to buy JPM in the last section of the letter suggestively called "Why Would You Want To Own The Stock?"
1. You would want to own the stock because "Many of our assets would sell at a substantial premium to what currently is on our books; e.g., credit card loans, consumer branches and others," Dimon writes. " And certainly, most of our businesses, if we sold them whole, would sell at a substantial premium to tangible book value."
2. You would want to own JPM because "We have huge capital formation," says Dimon proudly. When you look out many years into the future, JP Morgan Chase should generate huge amounts of capital, and once JPM meets the Basel III mandate of 9.5 percent capital, Dimon asserts "we will be generating extreme amounts of excess capital. And our organic growth and acquisitions unlikely will be able to use it all."
3. You would want to own JPM shares because this excess capital will allow the bank to buyback $10 billion of stock a year for three years at tangible book value. (Today about $33.00 a share. Under this assumption, Dimon claims that "not only would earnings per share be 20 percent higher than they otherwise would have been, but tangible book value would be 15 percent higher than it otherwise would have been... So you can assume that we are a buyer in size around tangible book value."
4. You would want to own JPM shares because "at $45 per share (about its current price today), buybacks would be accretive to earnings and approximately break even to tangible book value..." Whatever the case JPM will repurchase every share issued to employees as compensation; so there won't be any dilution to earnings per share for the public.
5. You would want to own JPM shares because Dimon insists the bank is "reserved substantially for mortgage litigation arising from the 2008 housing meltdown."
6. You would want to own JPM because "only two regulations" from the Dodd-Frank legislation can "hurt our competitive ability... and "we believe they both will be properly resolved in a way that will allow us to complete fairly." Dimon thinks JPM's competitors will be hurt worse by the new law. Take that GS.
7. You would want to own JPM shares because of Dimon's very last comment in his letter, written on March 15. "I view it as a great sign of strength," he wrote, " that, in the worst financial markets since the Great Depression, your company could earn money, grow tangible book value (from $22.52 to $33.69 -- a more than 50 percent gain), buy Bear Stearns and WaMu and expand our franchise."
8. You would want to own JPM because as Dimon says on page two of the letter "WE believe you own an exceptional company. Each of our businesses is among the best in the world, and record earnings were matched by increased market share in most of our businesses."
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