The Reason JPMorgan Chase May Be an Opportunity

As I watched Wall Street: Money Never Sleeps last weekend, I thought I was looking at a documentary. In one scene, a Wall Street bank bails out a weaker competitor for around the price of its headquarters.

Those are the kinds of deals JPMorgan Chase (NYSE: JPM  ) was doing during the financial crisis. Literally.

When Bear Stearns faltered in March of 2008, JPMorgan Chase swept in and ended up paying $10 a share -- about a 90% discount from Bear's stock price just a month before. Yes, that was in the neighborhood of the value of Bear's headquarters.

The difference between the movie and real life is that the terms were sweeter in real life. JPMorgan Chase also got a nice loan and a backstop from the government on the Bear purchase.  

A few months later, JPMorgan Chase was shopping again, beating out Citigroup (NYSE: C  ) and Wells Fargo (NYSE: WFC  ) , among others, to bail out Washington Mutual. This time, there was no government backstop, but JPMorgan Chase paid a scant $2 billion for one of America's biggest banks. (How scant? JPMorgan Chase's current market cap is north of $150 billion.)

The opportunity
What this all means is that JPMorgan Chase, which already had more than $1.5 trillion in assets at the end of 2007, grew by 40% in a year of the-financial-world-is-going-to-end prices. Yet even after a recovery from the depths, its share price and market capitalization are pretty much the same as they were at the close of 2007.

That is the reason JPMorgan Chase may be an opportunity.

Bank of America (NYSE: BAC  ) , Wells Fargo, and PNC (NYSE: PNC  ) also used the crisis to opportunistically swallow up competitors and grow bigger. In fact, Wells and PNC doubled the size of their pre-crisis assets. Yowza!

And I haven't bought any of them yet
I haven't pulled the trigger on any of these companies -- except for some pre-crisis, long-held shares of Citigroup. In contrast, I bought up shares of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) after Warren Buffett made some ridiculously favorable moves during the crisis.

The difference? Berkshire Hathaway is as transparent as a $200 billion conglomerate can be. Even after going through the financial-reform process, the big banks have balance sheets that can hide many financial shenanigans. Lehman Brothers' antics, for example, offer just a taste of what can lurk beneath the surface. 

My preference has been to look for great deals on smaller banks that were opportunistic during the financial crisis. Want an example? My colleague Matt Koppenheffer details an opportunity he likes.

Interested in reading more about JPMorgan Chase? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Anand Chokkavelu owns shares of Berkshire Hathaway and Citigroup. Berkshire Hathaway is a Motley Fool Inside Value and Motley Fool Stock Advisor selection. The Fool owns shares of Berkshire Hathaway. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 10, 2010, at 12:46 AM, mm5525 wrote:

    Weds. a.m. I will particulary be listening for continued decreasing loan-loss reserves. Past recent quarters JPM still crushed all the estimates and could have reported far greater EPS if they were not so conservative on their loan-loss reserves. Also interested in whether or not they'll finally increase the dividend, and the opinions on this robo-notary foreclosure thing.

  • Report this Comment On October 10, 2010, at 9:10 AM, cowpatty10 wrote:

    "Institutions much larger than Washington Mutual--for example, Citigroup and Bank of America--collapsed, but the federal government prevented their failures by authorizing bank assistance...The OTS did not regulate the largest bank that failed; the OTS regulated the largest bank that was allowed to fail."

    Current OTS Director John Bowman

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