December 10, 2007

In the Lead - Barron's Online: JPM

In the Lead - Barron's Online

The publication praised the bank for its management quality, risk management, and growth potential. In my research in Bank of America, see post here, I did realize the value of JP Morgan. The bank have one of the best management team, tech savvy, deal experienced and cost conscious. very important qualities in many management teams, let alone a bank of the caliber of JPM.

However, my problem with JPM is it derives a considerable revenue from investment banking and those revenue stream can be very volatile. The income stream can fluctuate widly and hinges on careful management execution where margin for error is much smaller than retail banking.

Another factor is valuation, JPM is richly valued. Investors are factoring tremendous growth in its future earnings. The bank will have good revenue growth going forward but the price premium it commands relative to other banks is large. Mostly the premium is Mr. Dimon factor. Mr Dimon is considered as the best banker on the street. No doubt Mr. Dimeon has helped built Citi into an empire.

The bank is well run and have solid assets base but it is pricey for a value idea.

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