JPMorgan Chase & Co. (NYSE: JPM) is the largest US bank by asset size. The company was established through the merger of J.P. Morgan Bank and Chase Manhattan Bank in 2000. Since then, the bank has expanded through a series of mergers and acquisitions. The company operates through four divisions: Consumer and Community Banking, Corporate and Investment Banking, Commercial Banking, and finally, Asset and Wealth Management.
Since 2008, JPMorgan Chase & Co. has experienced tremendous growth, particularly during the dreaded Covid years. However, as economic uncertainty grows, so too does the question: Is JPMorgan Chase & Co. a buy?
The bull case for JPMorgan Chase & Co.
When we take a long view over the company’s past performance, there is a lot to like:
- Earnings per share (EPS) have grown at a compounded annual growth rate (CAGR) of 13.7% since 2004.
- Dividends per share have increased at a CAGR of 5.87% during the same period.
- Return on tangible capital equity (ROTCE) has a CAGR of 4.74% since 2004 and currently sits at 16%.
- Tangible book value has increased at a CAGR of 8% since 2004.
JPMorgan Chase has also lifted its forecast of net-interest income to $56 billion by the end of 2022. This is up from January’s estimate of $50 billion. This figure indicates the difference between the income from loans and interest paid on deposits and other funds. This shows that higher interest rates are already benefiting the company. With investors nervous about a potential downturn, JPMorgan Chase has this covered with its strong liquidity ratios. The firm’s liquidity coverage ratio is 110% while the legal minimum is 100%.
The bear case for JPMorgan Chase & Co.
The company has experienced tremendous growth in the past and is one of the most profitable banks in the sector, but this growth is not guaranteed in the future. Investors are skeptical about the company’s ability to further raise profits. This year, the company expects to spend $77 billion on technology, marketing, and new products. This investment expenditure is both ambitious and risky — should it not yield positive returns, investors may sour on the stock and leave the company with extensive losses.
The biggest risks to the stock come from forces outside the company’s control. Should a recession occur, the bank’s revenues will fall and planned capital spending will drastically increase its losses. Regulations on the banking sector have also hindered its ability to compete with non-bank rivals. Finance companies, technology companies, and other non-bank firms can compete in similar services without the same regulatory restrictions as the banks.
The nonbank share of mortgage originations has grown considerably since 2010, greatly reducing banks’ share of this lucrative financial product. In recent years, fintech companies such as Revolut (for Europeans), Chime, and Klarna have exploded in popularity among customers frustrated with banks’ high fees and slow service. This competition has and will continue to erode the banking sector’s size, which may hurt JPMorgan’s profitability.
So, should I buy JPMorgan Chase & Co. stock?
The company’s strong brand image, effective management team, and immense investment expenditure indicate that this is a strong company that may continue to grow over the coming years. While a recession is possible, the chairman and CEO James Dimon is confident in the bank’s ability to withstand the impact. However, regulations are holding the company back in its ability to compete with its nonbank rivals. The competitive landscape of the financial services industry may provide difficulties for the bank, but I feel JPMorgan will put up a fight and continue to deliver good returns for investors.
Who is JPMorgan’s Biggest Competitor?
This would be Bank of America (NYSE: BAC), which has the second-largest total assets after JPMorgan Chase.
Is JPM a Stable Bank?
The company’s high liquidity ratios indicate that it is financially stable and should withstand the coming turmoil.
Why is JPM Stock Going Down?
Like many stocks, the company has experienced a decline due to the current market sell-off.
Shane Vigna, Author at MyWallSt Blog