JPMorgan Chase & Co. (NYSE:JPM) continue to faces legal problems from numerous directions, even as the London Whale incident nears to a close. Nonetheless, Sterne Agee analysts believe the bank’s fundamentals are strong and have rated it as a Buy because its shares continue to trade “at a meaningful discount” to those of its peers.

JPMorgan

Legal issues remain a concern for JPMorgan shareholders

Analysts Todd L. Hagerman and Robert Greene issued a research note to investors have they hosted an investor meeting with JPMorgan Chairman and CEO Jamie Dimon. They said he shared his thoughts on a number of topics, including the legal problems which have plagued the bank.

Dimon told them that they remain confident they will eventually get through all of the legal and regulatory challenges JPMorgan Chase & Co. (NYSE:JPM) faces right now. Sterne Agee analysts note, however, that these challenges will continue to create headwinds for the bank. They said it’s “exceptionally difficult, if not impossible, to handicap a potential inflection point or ultimate cost to shareholders.”

And even though the bank is proactively trying to settle as many of its legal problems as possible and respond to all of the government’s requests, it “remains prepared to litigate otherwise outsized or punitive claims against it that are deemed without merit.” However, the analysts say investors shouldn’t expect some kind of “global settlement” to speed up the cleanup of the bank’s reputation or legal problems.

“Compelling value” in JPMorgan’s discounted valuation

The analysts say that over time, they expect the legal and regulatory overhaul to diminish as JPMorgan Chase & Co. (NYSE:JPM)’s underlying earnings power continues pushing upward. They note that low rates, increased compliance costs and the expectations for a slowing mortgage business do pose a challenge for the bank’s pre-provision profits. However, they believe better-than-expected credit leverage, combined with lower legacy mortgage-related costs and increased efficiency will continue to push the bank’s earnings in a healthy direction and drive growth next year.

The Sterne Agee analysts say it’s difficult to ignore JPMorgan Chase & Co. (NYSE:JPM)’s discounted valuation because it has proven its ability to generate extra capital and consistently increase tangible book at a double digit pace while delivering a mid-teens return on tangible equity.

They remain Buy rated on JPMorgan Chase & Co. with a $65 per share price target on the bank’s shares.