Waiting for Jamie Dimon's next move

Few analysts doubt that JPMorgan Chase CEO Jamie Dimon could pull off another acquisition after buying Bear Stearns.

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NEW YORK (CNNMoney.com) -- With so many banks reeling because of the credit crisis, the rumor mill is cranking up again about what JPMorgan Chase might want to buy next.

So what's chief executive officer Jamie Dimon waiting for?

A little more clarity, for starters.

There is still plenty of uncertainty about whether the worst is ahead or behind for the financial services sector.

Two more banks failed last Friday. In addition, Merrill Lynch (MER, Fortune 500) announced Monday, that it was seeking to raise $8.5 billion in capital to clean up its balance sheet.

Analysts were also caught off-guard nearly two weeks ago when Dimon warned during JPMorgan Chase's (JPM, Fortune 500) second-quarter earnings conference call that he expected losses in his company's prime mortgage portfolio to triple in the coming quarters.

And there is no sign that housing prices, or the broader economy for that matter, have found a bottom, suggesting more writedowns and loan losses for the nation's banks.

"He sees that we are in a muddy risk environment," said Jason Tyler, a senior vice-president at the Chicago-based Ariel Investments, which manages about $9 billion and owns shares of JPMorgan Chase. "He wants to makes sure the price is absolutely reflective of any downside scenarios."

Still, some analysts speculate that Dimon is eager to add another regional bank to JPMorgan Chase's franchise.

As for potential targets, analysts say that many of the same names that Dimon was interested in since he first took over as CEO two and a half years ago are probably still intriguing.

There's Atlanta-based SunTrust (STI, Fortune 500) for starters, which would give JPMorgan Chase a bigger presence in the Southeast. So far this year, SunTrust shares are down nearly 42%. And just last week, the company said it sold about $2 billion worth of its long-time investment in Coca-Cola Co. stock in order to raise capital.

The thrift giant Washington Mutual (WM, Fortune 500) has been often mentioned as a takeover target as well. Acquiring the troubled WaMu would give Dimon the West Coast exposure he has long desired.

In fact, WaMu reportedly snubbed a $8-per-share offer from JPMorgan in April, in favor of selling an equity stake to a group of investors led by the private equity giant TPG. For what it's worth, WaMu shares have fallen 67% since then and now trade at about $4..

And some experts believe the Charlotte-N.C.-based Wachovia (WB, Fortune 500), whose credibility was recently bolstered with the appointment of former Treasury undersecretary Robert Steel as its new CEO, may also be in play. Wachovia shares are down 64% so far this year.

But there are big hurdles to getting any deals done. The stock price of most targets may be so beaten down that management won't want to sell, noted Thane Bublitz, senior equity analyst at the Minneapolis-based Thrivent Financial.

"There are a lot of regional banks that the management team is in it to eventually be acquired, but they are not talking about it because valuations are so depressed," said Bublitz.

Few doubt Dimon's ability to pull off another acquisition just two months after completing its purchase of investment bank Bear Stearns.

For more than a decade, Dimon served as the right-hand-man of Sandy Weill, helping create the modern-day Citigroup (C, Fortune 500) through a dizzying number of mergers.

But if Dimon waits too long, he might have to pay more for something than he would today.

"It's certainly a buyer's market - it would be to their advantage to do something relatively soon," said Christine Barry, research director at Aite Group.

What's more, banks also face the threat of key accounting changes starting next year. One rule under consideration by the Financial Accounting Standards Board, an organization that establishes financial accounting and reporting standards in the United States, would require financial institutions to include all off-balance sheet assets onto their books.

While that might not be enough to prevent JPMorgan Chase from doing a deal in 2009, if Dimon waits until next year, that could mean more nasty writedowns for the bank.

Dimon himself told Oppenheimer & Co. analyst Meredith Whitney in a meeting late last week that the new accounting changes for 2009 could "hamper M&A activity within the industry," Whitney wrote in a note published Sunday.

So if a deal is indeed looming for JPMorgan Chase, you can bet Dimon will want to act sooner, rather than later.