By Matthias Rieker
When veteran bank analyst Michael Mayo heads to Tampa, Fla. to
attend J.P. Morgan Chase & Co.'s (JPM) annual meeting Tuesday,
he will be looking for more than just the "Jamie Show."
With shareholders pushing for changes to the board and the
separation of the chairman and chief executive roles, Mr. Mayo said
he is hoping to get a better sense of the bank's directors--the
people elected to watch over Chairman and CEO James Dimon.
Mr. Mayo, an analyst with securities firm CLSA, has already
attended three annual meetings this year, challenging management at
Citigroup Inc. (C), Morgan Stanley (MS) and KeyCorp (KEY).
He has taken the unusual step for an analyst to buy stock--100
shares of each of the three companies--to become eligible to attend
the meetings.
"I am going down there and I want to know, who is Lee Raymond,"
Mr. Mayo said. Mr. Raymond is the former chairman and CEO of Exxon
Mobil Corp. (XOM) and J.P. Morgan's presiding director. "Jamie
Dimon, you are saying: 'We have a strong board.' Let me see the
board, let me hear from Lee Raymond," Mr. Mayo said. "If it's just
a Jamie show, that would be very disappointing."
More broadly, Mr. Mayo wants to bring more substance to the
annual meetings. "I 100% get it. Annual meetings are treated as an
empty ritual," he said. "But I also 100% believe that that's not
the way it should be."
Even large institutional investors, who have regular access to
management, should question the board when given the chance at
annual meetings, Mr. Mayo said. "This is not shareholder activism,
this is shareholder duty."
After praising and criticizing bank managements for years in
analyst reports, media interviews, a book, and testimony before
Congress, "This is the next logical step," Mr. Mayo said in an
interview Friday. He added, "My only disappointment is that I
didn't do it sooner."
What he has found out so far during his tour has been
meaningful.
"I got significant information out of each of the three meetings
I have been to so far," Mr. Mayo said.
He obtained details from Morgan Stanley about the bank's return
on equity targets, saw how Citi Chairman Michael O'Neill and CEO
Michael Corbat interact, and after meeting KeyCorp's lead director
Alexander Cutler, determined he is a strong director.
The banks got something out of it, too: As a result of attending
the meetings and the information he got there, Mr. Mayo increased
this year's earnings estimate for Morgan Stanley by 15 cents per
share, to $2.20, and by 35 cents for 2014, to $2.85. He increased
KeyCorp's 2014 and 2015 earnings estimates by 10 cents per share
each, to $1.05 and $1.15, respectively.
Mr. Mayo didn't have time to buy shares by a deadline for the
annual meeting of J.P. Morgan. Instead, he is attending it as a
shareholder's proxy. He won't name the shareholder, or how he
intends to vote on the proposal to split the chairman and CEO
roles.
J.P. Morgan reported a record $21.3 billion profit in 2012, up
12% from a year earlier. But a more than $6 billion loss on
ill-placed bets by a trader known as the "London whale" has riled
investors, regulators and Congress. The incident has caused some
critics to demand that the bank split the chairman and CEO roles to
improve oversight.
Still, he said about the proposal: "I am not looking for a
ceremonial chairman they can put in charge just so they can fill a
box. Who wants that? What we want [to see] is that the board is
strong, looking over management's shoulder."
A spokesman for J.P. Morgan said, "We are pleased Mike will be
joining us." Citi, Morgan Stanley, and KeyCorp declined to
comment.
For most companies, annual meetings are placid events, usually
attended by few shareholders who ask even fewer questions. Citi's
meetings have been a notable exception; shareholders have taken the
board to task in a way that impressed even Mr. Mayo, who has a
reputation for tenacity.
"In my profession, people call me aggressive," he said when he
got the microphone almost two hours into the Citi annual meeting in
New York on April 24. "But after seeing the questions here today, I
think my profession is a little too wimpy." He went on to ask how
the board measures success for shareholders, and how it evaluates
strategic alternatives such as a potential break up of the
company.
Mr. O'Neill answered the board looks "at alternatives on a
regular basis," but what Citi is doing now "makes the most
sense."
Mr. Mayo said the Citi meeting was valuable because he realized
how well Mr. O'Neill seemed to work with Mr. Corbat. The two were
"like Sonny and Cher," Mr. Mayo said.
In October, Mr. Corbat succeeded Vikram Pandit, who had a rocky
relationship with the board.
"I think if you saw the body language at Citigroup's annual
meeting, you were very much reassured about the working
relationship between the chairman and the CEO," Mr. Mayo said about
Mr. O'Neill and Mr. Corbat.
At KeyCorp's annual meeting on May 16, Mr. Mayo found out more
about the Cleveland bank's efforts to improve its efficiency
ratio--the measure of expenses as a percentage of revenue.
Mr. Mayo went to the KeyCorp meeting skeptical of lead director
Mr. Cutler, the chairman and CEO of Eaton Corp. PLC (ETN), but,
after meeting him, "I left thinking this is a very impressive
person."
At Morgan Stanley's meeting on May 14, Mr. Mayo asked how the
board can assess management's performance without a specific time
frame for chairman and CEO James Gorman's target of achieving a 10%
return on equity. "The answer to that was, 'We expect to reach our
ROE target in 2014.' Bingo, that is significant," Mr. Mayo
said.
"They also reassured about the progress they are having in the
brokerage business, expenses, and the fixed-income [business]
restructuring," he said. Three directors answered Mr. Mayo, in
addition to Mr. Gorman, and Mr. Mayo got the sense the board is "on
message" with the bank's strategy.
Write to Matthias Rieker at matthias.rieker@dowjones.com
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