By Colin Barr
January 13, 2011

Fans are crossing their fingers they’ll soon see the swaggering, old JPMorgan again.

JPMorgan Chase (JPM) was the biggest winner in the financial crisis, scooping up Bear Stearns and Washington Mutual on the cheap and riding out the stock market collapse. Already well connected, Jamie Dimon & Co. got one more string to pull this month when longtime executive William Daley signed on to run the White House.

Yet lately the No. 2 U.S. lender has lagged behind its less impressive peers (see chart, right). Though the bank has gained market share in all six of its major businesses since the financial crisis erupted in 2007, says Mike Mayo of CLSA, the stock is trading at a discount to its historic valuation.

Mayo expects that to change, though, starting Friday morning when JPMorgan Chase is due to report fourth-quarter numbers. Wall Street analysts expect the New York bank to make 99 cents a share, up from 74 cents a year ago. But already investors are casting their eyes toward mid-2011, with varying degrees of anxiety.

“This year, we expect a dividend increase and issues with mortgage put-backs to get absorbed and become less of a consideration,” writes Mayo, who rates the stock buy and expects it to rise to $54 from a recent $44. “Further, the bank seems deal-ready, which at times has been a catalyst for the stock that underperformed last year.”

JPMorgan has made clear it is eager to start paying a bigger dividend, and backers expect it to be among the first big banks to get the OK from regulators to start paying out more to shareholders. The biggest U.S. lenders were due to submit the results of their latest internal stress tests to regulators last week, as part of an effort to make sure dividend payers don’t leave themselves vulnerable to an economic or market shock.

Dimon has spoken at length about the bank’s “fortress balance sheet,” which Jason Goldberg of Barclays believes will enable JPMorgan Chase to pay out $1.34 in dividends this year, up from 20 cents in 2009 and 2010.

Analysts also expect the bank to gain as it sets aside less money for credit losses. Like many other lenders, JPMorgan bolstered its third-quarter profit by releasing some previously set aside loan loss reserves. The bank is trimming its reserves as the economy improves and late payment rates stabilize.

But for all the improving signs, betting on the stock is as uncertain as ever, given problems in the economy, tightening regulation and questions about the legal implications of the banks’ foreclosure follies. Revenue is expected to have fallen 6% or so in 2010, and another decline looks likely this year as new rules governing all sorts of fees kick in.

Fans like Mayo say the bank should be insulated from those changes by its strong capital markets business, where JPMorgan has been moving smartly up the league tables. But those businesses can be plenty volatile, as we saw in the second half of 2010, even when all goes relatively well.

And there is no downplaying the impact of the foreclosure crisis, though Dimon has tried. Though decisions like last Friday’s Ibanez case seem unlikely to throw a major wrench into the banks’ recovery, neither will they bring the kind of certainty that tempts investors to pay more  for each dollar of earnings, as Mayo & Co. are counting on.

“We expect mortgage put-back and foreclosure issues, Basel III, and Dodd-Frank implications to suppress earnings and returns until a sustained robust economy emerges,” writes JMP Securities analyst David Trone, who rates the stock hold. Given the state of the job market, that could be a good, long wait.

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