JPMorgan’s stock buoys Dimon despite legal woes

As JPMorgan Chase inched closer to a tentative $13 billion deal with regulators to settle civil charges stemming from the financial crisis on Monday, the bank's stable stock price highlighted Wall Street's belief that CEO Jamie Dimon would stay put.

"I think Jamie probably stays in his job, but the investigation still seems to be ongoing,'' said Mike Mayo, a veteran bank analyst at CLSA known for contrarian calls and occasionally tangling with Dimon. "The bottom-line arbiter of this is the stock price, and JPMorgan still has outperformed most other bank stocks under Jamie Dimon.''

Mayo's comments came as the nation's biggest bank neared a settlement to clear up many of the investigations and litigation it has pending with state and federal regulators. The tentative deal reportedly doesn't resolve potential criminal charges against the bank. Since JPMorgan has already put aside $23 billion for settlements, most or all of the financial impact of the deal has already been absorbed.

To a bank the size of JPMorgan, with $2.4 trillion in assets, the $13 billion settlement almost exactly matches the company's net profit for the first two quarters of 2013. Profit is expected to grow rapidly next year, as housing and consumer markets accelerate slightly and the bank's international operations gain steam, Raymond James analyst Anthony Polini said.

Analysts' average estimate for earnings this year is $4.70 a share.

"They could make $6 a share next year,'' said Polini, who formally estimates 2014 earnings-per-share at $6.20 if there are no further write-offs. "They're delivering double-digit earnings gains when most banks are showing little or no growth.''

But the constant drumbeat of investigations has taken a toll even on JPMorgan's stock in recent years, Mayo said. Since October 2010, JPMorgan shares have slightly underperformed the Keefe Bruyette Woods index of major bank stocks.

Dimon has been CEO of JPMorgan since 2005.

One reason for Dimon's durability is Wal! l Street's sense that JPMorgan was misled by regulators who, eager to convince Dimon to rescue Bear Stearns in 2008 and Washington Mutual in 2009, let him think they would not pursue JPMorgan for misdeeds at Bear in particular, both analysts said.

JPMorgan has fed this idea by suggesting that 80% or more of the disputes it is resolving with regulators stem from misdeeds at WaMu and Bear, most recently in its third-quarter conference call with analysts.

"We didn't anticipate that we'd be paying anything for prior losses for Bear Stearns,'' Dimon said on the bank's earnings call Oct.11, adding that the deal prevented a bankruptcy in which $80 billion of bonds would have defaulted. He said regulators at the SEC, but not the Justice Department, had informally agreed to "take into consideration the circumstances."

"And we did ask,'' Dimon said. "We weren't completely stupid."