JPMorgan Especially Vulnerable to Bank Reform: Bove
Coming government regulation poses a threat to JPMorgan's future profitability because of the banks' large derivative investments, Richard Bove, a financial strategist Rochdale Financial Securities, told CNBC Tuesday.
Bove reduced JPMorgan's target price Tuesday to $44 from $55, however, Bove's rating on JPMorgan remains a buy.
'We obviously don't know how the bill will finally look. But if we assume there is going to be a change in the derivative situation, think about the fact that JPMorgan might have, in a notional value, $45 trillion worth of derivatives," said Bove.
"Therefore, it's a very profitable business for them, which in my estimate would be over 10 percent of their earnings, so if that business is cut back it will hurt them quite a bit...This bill is very Draconian when it comes to JPMorgan," he said.
Bove has also cut earnings estimates on banks including Bank of America , Citigroup and Bank of New York ,and said "it's just a really bad environment at the moment to make money if you are in banking."
Although Bove has reduced his price target for JPMorgan, he still recommends the bank as a buy on a longer time horizon.
"The second quarter is going to be a very weak quarter for the banking industry and I think for JPMorgan also...But if you take a look at the book value of the company, which I think is a real number...the stock is very cheap relative to its book value, and that, therefore, makes it something that someone would want to buy at this point," said Bove.