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Merrill Lowers JP Morgan to 'Neutral'

Analyst Judah Kraushaar questions JP Morgan's dividend safety

Merrill Lynch cuts JP Morgan Chase (JPM ) to neutral.

Analyst Judah Kraushaar questions JP Morgan's dividend safety. He notes management is negatively shifting its perspective on credit quality. Also, he expects weak third-quarter fixed income results. He says the capital base appears reasonably solid; nonetheless, managment seems increasingly uncomfortable with keeping a 60%-70% payout ratio.

Additionally, the settlement may be nearing for the company's $1 billion dispute with several bond companies; could hit reported earnings per share by $0.10-$0.20.

With dividend issues, the company is raising its risk premium, which reduces the 12-month forward fair value estimate to $25 from $33. Until the dividend event risk passes, Merill downgraded.

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