The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Corrects to say “Bilt” not “Bill” in the fifth paragraph.

By Stephen Gandel

NEW YORK, May 29 (Reuters Breakingviews) - Jamie Dimon may be on the hunt. JPMorgan's boss said on May 27 that the U.S. mega-bank he runs could strike a deal of up to $20 billion in the coming years. In this fictional letter, advisory shop Breakingviews Partners pitches Wall Street’s most outspoken CEO on an equally bold target.

Dear Jamie,

We know you have an army of M&A bankers ready to rekindle JPMorgan’s JPM.N tradition of big deals. Still, we thought you’d value an outside perspective. Your options for a $20 billion acquisition may seem vast. Yet by applying three simple rules – that an acquisition should be suitably large, fit well, and be opportunistically priced – one target rises to the top. You can thank us when we discuss fees.

Let’s start with what you shouldn’t do. In 2023, you bought tottering lender First Republic for $10.6 billion. It was a masterstroke, boosting loans by $170 billion and JPMorgan's market value by $60 billion. U.S. consumer banks are due further cleanup, but yours is already above a regulatory cap of 10% of nationwide deposits. This makes anything else a nonstarter.

There are some big overseas lenders, but you have expressed concerns about Europe’s economy. And while Standard Chartered STAN.L would fatten your Asian operations, its recent surge to a $58 billion market value is too high.

Despite the appeal of financial technology, JPMorgan's $175 million takeover of college financial-aid upstart Frank ended badly. Prime targets such as payments processor Stripe cost too much. Its peer, Bilt, has a rewards program that suits your credit card business. Scrutiny from firebrand Senator Elizabeth Warren, however, is a turnoff.

What’s left? For a CEO mindful of credit cockroaches, private lending might sound odd. But it is the right place to look.

Such a business would complement JPMorgan's M&A consiglieri, help out with making markets in non-bank debt, offer access to the red-hot AI trade, and turn one-off syndicated loan revenue into recurring management fees. One target stands out: Blue Owl Capital OWL.N.

Its failed credit-fund merger turned into a panicked exodus by retail investors and worries about overheated lending and write-downs are rampant. Even so, Blue Owl's $188 billion in fee-paying assets would make JPMorgan a giant in the field overnight. After sliding 60% from its peak, the firm now trades at $15.5 billion. A $20 billion offer would include a nice premium. The $3 billion of debt to assume is also manageable.

JPMorgan Asset Management already stewards $4.7 trillion, but diffusely across less-lucrative markets. Every 1% that shifts to Blue Owl funds should add $517 million in fees, given its 1.4% take rate versus JPMorgan's 0.3%. Each percentage point of reduced operating expenses bags another $12 million of synergies.

Assume 3% of assets shift while 5% of costs are slashed, and that’s $1.6 billion. Add Blue Owl’s expected operating income of $1.5 billion this year, according to LSEG, tax the lot, and it's $2.4 billion. The implied return of 11% beats an estimated 10% cost of capital. It also would put JPMorgan astride Apollo Global Management APO.N and Blackstone BX.N instead of waiting for them to encroach further on your business.

Call any time you like.

Best,

Breakingviews Partners

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CONTEXT NEWS

JPMorgan CEO Jamie Dimon on May 27 told attendees at an industry conference that the largest U.S. bank could consider a large acquisition. “I do think there might be, in the next couple of years, a chance to put $10 or $20 billion to work buying something,” Dimon said.