Weighed down by a troubled loan portfolio, a depressed market for its investment banking business and a demand by investors for better results, William B. Harrison Jr., the chief executive of JP Morgan Chase, appears to have backed himself into a corner.
After nearly two years of mostly disappointing results, the bank's stock has slumped almost 40 percent this year alone -- more than three times the drop of its benchmark index.
Investors want JP Morgan to put the past behind it, rid itself of problem loans and investments and start fresh. It could begin, they say, by selling its worst holdings in the telecommunications industry and taking yet another charge against earnings before the end of the year.
But the bank, which made many of those investments at or near the peak of the market, is resisting selling them at or near the bottom. And it is chary about antagonizing the credit rating agencies, which have already cut the bank's creditworthiness because earlier writeoffs have eaten into its capital. Giving up on more loans could send the bank's debt ratings even lower, raising costs and crimping its trading operations.
"You can see that they are hamstrung," said Thomas M. Finucane, an analyst with State Street Research.
Harrison is pleading with investors to be patient, insisting that the bank's corporate lending and investment banking businesses will revive when the economy does.
But, as the person who is responsible for this mess, his credibility is weak. Investors and analysts are not in the mood to cross their fingers and hope for the best. If results do not improve soon, even officials within the bank acknowledge that a management change may be inevitable.
"Management should bite the bullet and cut the dividend and get out of the denial they are in," said Michael L. Mayo, an analyst at Prudential Financial.
He pointed out that the dividend has not changed since just after the merger creating the bank was completed on Dec. 31, 2000, even as earnings have plunged.
"The bank is paying out too great a proportion of its earnings in dividends," Mayo said.
Last quarter, it paid its usual dividend of US$0.34 a share, even though its operating earnings were less than half that, US$0.16 a share. The bank dipped into its capital to make up the difference.
JP Morgan executives, including Harrison, who was traveling and not available to be interviewed for this article, have said they are reluctant to cut the dividend because its relatively high level -- over 6 percent of the share price as of Friday's close -- attracts investors to the stock.
Dina Dublon, the chief financial officer, acknowledged in an interview last week that the bank's position was difficult. "There is no silver bullet" to slay all the bank's demons, she said.
Some professional investors agree, but that is hardly good news for the bank.
Michael F. Price, the legendary value investor who made a fortune for investors in his Mutual Series funds by loading up on Chase Manhattan stock in the mid-1990s, said he was not tempted by JP Morgan even at today's prices. Instead, he recently bought shares of Citigroup.
While Citigroup's shares are also down this year -- they are off almost 22 percent -- Price said he found Citigroup's businesses easier to analyze and value, and its earnings less volatile than JP Morgan's.
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