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Did Dimon's Snark Prompt Mayo's Underperform Rating on JP Morgan?

Did Dimon's Snark Prompt Mayo's Underperform Rating on JP Morgan?

Perhaps it is just a coincidence, but J.P. Morgan Chase (NYSE: JPM) was the subject of a tepid research note published earlier today by CLSA. The analyst that penned the noted was none other than Mike Mayo.

That is the same Mike Mayo that was on the receiving end of some snark courtesy of J.P. Morgan CEO Jamie Dimon on a recent conference call. Basically, the exchange boils down to this: Mayo asked Dimon if affluent customers might be apt to choose rival UBS (NYSE: UBS) over J.P. Morgan due to the Swiss banking giant's superior capital ratios.

On the call, Mayo noted that UBS's capital ratio, the measure of its balance sheet strength, is 13 percent.

To that, Dimon retorted "That's why I'm richer than you."

Mayo then issued the aforementioned note earlier today, rating shares of J.P. Morgan Underperform with a $50 price target, implying minimal upside from current levels.

"JPMorgan Chase seems best-of-breed but remains under pressure from low rates, regulatory changes, and extra global costs. We believe the jury remains out on whether the newly configured top management team can perform as well as in the past, an issue that we detailed in our investor day preview note. In short, while JPM is a higher operator than many of its peers, its current ROE is already close to target (15% vs. 16%) and we prefer Citi as a restructuring story," wrote Mayo.

To be fair, Mayo's note is not totally bearish. Mayo notes that J.P. Morgan is the "the top-ranked Investment Bank (in terms of revenues), number three retail bank (deposits), number two in mortgage (originations), number one in cards (receivables), number two in processing (assets under custody), and top ten globally in asset management (global AUM)."

Still, the Underperform rating shortly after drawing Dimon's ire can be viewed as curious. It does not appear to be having much of an impact on the shares, as J.P. Morgan is trading higher by about 2.8 percent in midday trading Wednesday. Perhaps the stock is getting a boost from Barclays and UBS raising their price target on J.P. Morgan to $56 and $52, respectively.

Challenging banking executives is nothing new for Mayo. After all he, authored the book "Exile On Wall Street" and has openly said the U.S. financial system did not learn from the Enron and WorldCom bankruptcies earlier this century.

Indicating that Mayo does not hold a grudge, he did, as was noted earlier, say Citigroup (NYSE: C) is a preferred restructuring story. Several years ago, Mayo ran afoul of former Citi CEO Sandy Weill for being critical of extreme leverage in the banking sector. Those criticisms and queries prompted Weill to ban Mayo from Citi analyst calls.

For those keeping score at home, shares of J.P. Morgan are up about 19.6 percent in the past 90 days while Citi is up about 19.4 percent.


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