For reasons that will escape even the most rigorous analysis, JP Morgan (NYSE: JPM) has elected to raise $6 billion through the sales of preferred shares. In the last quarter, the big bank had profits of almost $2.4 billion. This was down by almost half from a year ago, but still very presentable in the current environment.
JPM did put aside $4.42 billion for loan losses and took about $2.6 billion of write-downs tied to mortgages, loans to fund corporate buyouts, and tight credit markets. But, its balance sheet remained unusually strong, especially compared with peers like Citigroup (NYSE: C) and Wachovia (NYSE: WB).
So, why the need for money? Across town cagey old-timer and billionaire Wilbur Ross is raising money from sovereign funds in the Middle East. He wants to start picking through the bones of financial firms which were hit by the recent mortgage crisis. Knowing his knack for finding deals amid the wreckage Ross is likely to do well.
James Dimon, head of JPM, was born a deal man. He worked for deal man extraordinaire Sandy Weill before that mentor threw him under the bus. Dimon created the current JP Morgan by merging Bank One into it. Now he has picked up Bear Stearns for very little risk and at a low price.
Dimon and Ross can now race to find the best assets among the ruins. JPM is not raising $6 billion because it needs the money. It wants to push M&A which the targets are still cheap.
Douglas A. McIntyre