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JPMorgan Worth One-Third More in Break-Up, Mayo Says

JPMorgan Chase & Co., the largest U.S. bank by assets, should consider breaking up and selling businesses because its parts are worth one-third more than its market value, according to Mike Mayo, an analyst at CLSA Ltd.

While JPMorgan’s stock has outperformed its peers, the New York-based company has trailed the leading firms in its individual businesses, Mayo wrote in a note e-mailed today. JPMorgan executives must make the case at tomorrow’s investor conference for why the firm shouldn’t be broken up, he wrote.

“At what point does the conglomerate discount become so great that it encourages the company to take action?” Mayo wrote. “The stock seems undervalued, but the question is how and when this value gets realized?”

Bank stocks including JPMorgan underperformed the broad market over the past eight years, according to Mayo. Even after this year’s 15 percent gain, the stock is worth about 2 percent less than at the end of 2004. Mayo asked whether the firm run by Chief Executive Officer Jamie Dimon should sell its asset-management and processing units, which accounted for 18 percent of 2011 revenue, and use proceeds for share buybacks.

“Eight years is a long time to wait for a higher share price when the five top executives at JPM from 2004-2010 received over $600 million in compensation,” Mayo wrote.

Joe Evangelisti, a JPMorgan spokesman, declined to comment on the report. The stock gained 6 cents to $38.34 at 11:32 a.m. in New York.

JPMorgan’s net income climbed 9 percent to $19 billion last year as credit quality improved. Revenue dropped 5 percent to $97.2 billion, the lowest since 2008.

“If JPM is best-of-breed and it still underperforms, perhaps the breed is not so good or the company needs to better explain the synergies whose benefits are missing from the share price,” Mayo wrote.

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