JPMorgan Chase (JPM) will host an investor day starting on Tuesday and in preparation CLSA banking analyst Mike Mayo made a somewhat audacious proposal: the big bank should split up.
JP Morgan has been the “best in breed” among the big banking conglomerates. But in its individual business lines, JP Morgan still lags competitors: in credit cards, for instance, its franchise isn’t as strong as American Express’ (AXP). And in retail banking, Wells Fargo (WFC) still has the edge.
The stock appears to be trading at a “conglomerate discount” that could be reduced if it split off some of its businesses, Mayo argues.
“Perhaps the processing business should be sold? Maybe there are some branches to get divested in less attractive areas? Does JPM need to be this big?”
Mayo, who recently published “Exile on Wall Street”, also questions whether JPM should be expanding its retail banking business so aggressively. Since the end of the recession, it has surpassed Bank of America (BAC) as the bank with the most branches in the U.S.
“[T]he environment is one of Japan-lite (see our prior reports), ongoing in the USA and perhaps more in Europe, so why is JPMorgan expanding in both so aggressively? The US branch expansion looks like a last-century approach.”
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