Unlike Bank of America and Citigroup, JP Morgan has been on the receiving end of wide acclaim for its performance and business model from banking analyst Mike Mayo.Despite that, Mayo explored the idea of a JP Morgan spin-off in his latest analyst report, reasoning that the company is trading well below the sum of its parts and that imminent global financial regulation may restrict synergies that the bank has built up across the board.
Indeed, at what point does the conglomerate discount become so great that it encourages the company to take action? The pieces of JPMorgan are worth 1/3 more than the current market value (est) based on a sum-of-the-parts analysis. As a result, should JPMorgan sell higher-valued asset management and processing and redeploy the proceeds to share buybacks? On Tuesday, we expect the company to make the case that these and other businesses provide firm-wide synergies, though the ultimate proof is not whether JPM is best in breed vs its global peers (which it is), but whether it is best in class vs non-conglomerates (not the case). The stock seems undervalued, but the question is how and when this value gets realised?
It’s simply an idea—and one that Mayo expects to be refuted immediately at JP Morgan’s investor day tomorrow—but it still provides some interesting food for thought. Mayo certainly isn’t the first to call for the break up of big banks in order to increase value.