JPMorgan Chase & Co. (JPM:US) investors risk shortening Jamie Dimon’s tenure as chief executive officer if they appoint a separate chairman to help lead the bank, according to Charles Peabody, an analyst at Portales Partners.
“If the board is forced by a shareholder vote to strip Jamie Dimon of his chairman’s role, then shareholders may find that Jamie Dimon decides to move on, maybe not immediately but within the year,” Peabody wrote in a note to clients today. “If that were to occur, is there someone with Mr. Dimon’s talents capable of stepping into the breach?”
Calls for Dimon, 57, to give up the chairmanship have been building since the bank disclosed risk-control lapses on derivatives bets last year that fueled more than $6.2 billion in losses. In March, the New York-based firm’s board urged investors to vote against naming a separate chairman at the next shareholder meeting, saying that Dimon’s dual role remains the “most effective leadership model.”
Dimon told investors in February that he wouldn’t have agreed to take a previous job, leading Bank One Corp., if the board hadn’t given him both roles, Peabody recalled. JPMorgan acquired Bank One in 2004 to create the company it is today.
“Troubled company, big turnaround, divided board,” Dimon said in February. “Not me. Life is too short.”
If Dimon leaves, “shareholders may just find that the stock loses its premium valuation,” wrote Peabody, whose firm predicts JPMorgan will underperform the Standard and Poor’s 500 Financials Index in the coming 12 months.
Since Dimon added the chairman title at the end of 2006, JPMorgan’s stock has slid less than 1 percent through last week. That compares with a 51 percent drop in the index. The firm trades at 0.93 times book value, a measure of assets minus liabilities. That’s still more than Citigroup Inc. (C:US)’s 0.7 ratio and Bank of America Corp. (BAC:US)’s 0.59, according to data compiled by Bloomberg.
Joe Evangelisti, a JPMorgan spokesman, declined to comment on Peabody’s note. A shareholder proposal to appoint an independent chairman failed with 40 percent of the vote last year.
The Federal Reserve and Office of the Comptroller of the Currency censured JPMorgan in January over failures in risk controls for the so-called London Whale trades as well as for lapses in anti-money laundering controls. Last month, Senate investigators said in a report that the bank and its leaders dodged regulators and then misled investors as losses escalated on the bets.
The board cut Dimon’s pay in half for 2012 after concluding that he bore some responsibility for the debacle. It also credited his leadership for the lender’s performance. JPMorgan, the largest bank in the U.S. with $2.4 trillion in assets, reported a third straight year of record profits in 2012 with $21.3 billion in net income.
A coalition of retirement plans, including the AFSCME pension fund, is pressing to separate Dimon’s roles.
The fund said in February that its views reflect “mounting investor concerns with the board’s oversight in the wake of the London Whale losses, recent regulatory sanctions and its failure to fully demonstrate that it can manage the size and complexity of its balance sheet.”
JPMorgan would probably wait to split the roles because doing so now “would look like a rebuke to Jamie,” said former Securities and Exchange Commission Chairman Arthur Levitt.
“That title will be divided,” Levitt said today in an interview with Tom Keene on Bloomberg Radio. “Not now, a year from now.”
Levitt is a board member of Bloomberg LP, the parent of Bloomberg News, and an adviser to firms including Goldman Sachs Group Inc. (GS:US)
Having an independent chairman doesn’t necessarily improve results for shareholders, Peabody said. Investors should look to Citigroup, the third-biggest U.S. bank, where Chairman Michael O’Neill led a “political assassination” of then-CEO Vikram Pandit in October, Peabody wrote. O’Neill used shareholder dissatisfaction to install a “yes man,” Michael Corbat, as CEO and to consolidate his power, Peabody said.
O’Neill’s ouster of Pandit hasn’t led to any significant change in strategy, Peabody said. There was probably a greater separation of powers between O’Neill and Pandit than there is now, the analyst said in a phone interview.
Shannon Bell, a spokeswoman for New York-based Citigroup, declined to comment on Peabody’s views.
“In either case, political desires, more than good corporate governance, are at work,” Peabody wrote.
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