J.P. Morgan May Be Receiving Callersby
Despite its shining image worldwide, J.P. Morgan (JPM) is no star on Wall Street. Both last year and this, the shares of the bank holding company have trailed the Standard & Poor's 500-stock index and the money-center bank indexes. "That puts J.P. Morgan under the gun--and at the head of the list of banks ripe for buyout," says a strategist at a New York investment bank. The stock closed at 118 1/4 on Aug. 12, down from 148 on Apr. 15.
The buzz: A much larger European bank has been in talks with Morgan about a merger or acquisition. The price being discussed, says the investment pro who claims to be familiar with the informal talks, is $30 billion, or $175 a share--2 1/2 times Morgan's estimated 1999 book value of $70 a share. He believes, however, that Morgan is holding out for $200. Morgan has assets of more than $262 billion and a market cap of $20.6 billion.
Earlier this summer, Chase Manhattan was said to be eyeballing Morgan, but the whispers have since faded, although arbitrageurs insist that Chase shouldn't be counted out just yet.
Morgan Chairman Douglas "Sandy" Warner III "is under tremendous pressure from big shareholders to boost the stock," notes an institutional investor who holds a large stake in Morgan, which owns Morgan Guaranty Trust, the fourth-largest U.S. bank. As banks consolidate, "it's difficult not to imagine J.P. Morgan as a buyout or merger candidate," says S&P banking analyst Stephen Biggar.
Biggar rates the stock a hold, based on the fundamentals--including worries about difficulties in Asia, which, he notes, have hurt Morgan's overall results. "There isn't much I see that could put fire under the stock--except, perhaps, for a buyout," argues the analyst. He doesn't include a buyout in his rating. "I'm not aware of any deal," he says, "but I wouldn't rule it out."
Morgan has lots to offer, says Biggar, including a wide range of businesses: 60% of its income comes from advisory, capital-raising, market-making, and asset-management services. He figures Morgan will earn $8.25 a share this year and $8.75 in 1999, up from last year's $7.17. Morgan spokesman Joe Evangelisti declined comment as a matter of policy. At the April annual meeting, Warner said Morgan intended to stay with its go-it-alone strategy.