(Bloomberg Opinion) -- Jamie Dimon appears restless. JPMorgan Chase & Co.’s chief executive officer is imploring investment bankers — those most tireless of salespeople — to ring him up and pitch M&A ideas. It’s the clearest indication yet that the biggest U.S. bank would prefer not to sit on its excess capital. That’s a nice problem to have, but one the lender is struggling to solve. The worry is that this pushes it toward a transaction at any cost.
Barred by regulators from buying back stock because of the pandemic and from acquiring a deposit-taking institution in the U.S. because of its size, the Wall Street giant could look to expand in commercial banking outside its domestic market.
When asked if he’d take a look at a European lender, Dimon has said — correctly — that it makes little sense for the world’s most profitable bank to add branches in such a fiercely competitive market, where returns are barely half what JPMorgan makes. Instead, he’s reportedly looking at starting a digital bank in the U.K. He may even try to buy an upstart British challenger, Starling Bank, according to some press reports. But that would be small fry.
In Asia, acquiring a lender such as Standard Chartered Plc might propel JPMorgan into higher-growth emerging markets, but taking on the balance-sheet risk and the difficulty in integrating vastly different business cultures would be hard at the best of times. The pandemic just adds to the perils.
Elsewhere, there’s not much point expanding JPMorgan’s capital-intensive investment banking businesses. There’s only so much growth the firm can tap into to put its abundant reserves to work. Over the next year, investment bank activity is expected to shrink after a blockbuster 2020. While the industry remains fragmented, JPMorgan’s dominant trading unit already has an outsize share of many markets. Hedge funds and other big clients might not be so keen on yet more exposure to one firm.
That leaves Dimon with two natural areas of expansion: fintech and asset management. The pandemic has accelerated the shift to digital payments, a business Dimon regrets not having built up sooner. Unfortunately for him, soaring fintech valuations mean large acquisitions would be expensive. Shares in Square Inc., for example, have jumped more than fivefold since March. PayPal Holdings Inc.’s 78% price rise since February and JPMorgan’s 11% decline has closed the valuation gap between the two from about $285 billion to roughly $120 billion.
Better to wait for the reopening of economies and see whether there’s a readjustment of prices among payment providers.
Asset management valuations might be more attractive. Prices aren’t far off their five-year average, according to Bloomberg Intelligence, even after Morgan Stanley’s Eaton Vance acquisition and Macquarie Group Ltd.’s purchase of Waddell & Reed Financial Inc., which both pushed BI’s forward price-earnings multiple for large-cap asset managers up to about 15.6 times.
For JPMorgan’s $2.6 trillion asset manager, smaller acquisitions may be easier than adding real scale. It could expand its private-market business, a pocket of growth as yields remain depressed. Or it could target passive investment. The bank only ranks 10th in exchange-trade funds in the U.S. Societe Generale SA wants to sell its Lyxor fund manager, which runs about $180 billion and has about 7% of the European fund ETF market. While that might be nice to have, it wouldn’t be a big enough deal to solve Dimon’s capital problem.
The trouble for JPMorgan — now outside the top-five asset managers — is that there are few feasible takeovers that would put it in the top three, other than State Street Corp. Many of the bigger managers are either privately owned or part of larger companies. It’s not clear they would be for sale at a compelling price. Taking over State Street would put JPMorgan on the ETF map alongside Vanguard and BlackRock Inc., though regulators may object.
With three large mergers under his belt as CEO, Dimon knows what dealmaking entails. The lure of sealing another one before his eventual retirement shouldn’t cloud his better judgment.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.
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