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Fundamental View
AS OF 29 Aug 2024JPMorgan is one of the strongest and best positioned banks to navigate the current environment, with a well-diversified business model and good competitive positioning across a variety of lending and capital markets areas.
The company continues to deploy its considerable earnings power into reinvestment, specifically around technology where we are bullish on its ability to drive competitive advantages through strategic enhancements and efficiency gains.
Business Description
AS OF 29 Aug 2024- JPMorgan ranks as the largest U.S. bank by total assets ($4.14 tn at 2Q24) and deposits ($2.40 tn at 2Q24).
- JPMorgan ranks 1st in terms of U.S. deposits with approximately $2.07 tn in deposits at YE23 across 4,891 branches (S&P Capital IQ). JPMorgan's footprint includes New York (#1), Texas (#1), California (#2), Illinois (#1), Michigan (#1), Arizona (#1), Ohio (#5), and Florida (#4), among others.
- JPMorgan's major business lines include investment banking, retail banking, card services, treasury & securities services, commercial banking, and asset & wealth management.
Risk & Catalysts
AS OF 29 Aug 2024Succession planning at JPMorgan has a higher profile than many peers, with CEO Dimon (68 year-old) having held the top spot for over 15 years. Another recent round of shuffling top management did not yield much clarity, with presumed frontrunners Marianne Lake becoming sole CEO of the Consumer Bank and Jennifer Piepszak moving over to co-CEO of the new Commercial & Investment Bank segment, alongside Troy Rohrbaugh who has been running Markets & Securities Services.
The sector remains exposed to reputational, legislative/administrative risk, and cyber threats, although the significant tech spend over the past few years should (theoretically) result in a stronger position for JPM to manage the security threats.
Although not likely a credit risk, JPMorgan may continue to be acquisitive around non-bank financial and ancillary services; but we would expect any deal to be conservatively funded and looking to further technology and fee income strategies (e.g. payments or asset management).
Key Metrics
AS OF 29 Aug 2024$ mn | FY20 | FY21 | FY22 | FY23 | 2Q24 |
---|---|---|---|---|---|
ROAE (annual) | 10.9% | 17.0% | 13.2% | 16.0% | 16.7% |
ROAA (annual) | 0.9% | 1.3% | 1.0% | 1.3% | 1.3% |
PPNR / Avg. Assets | 1.52% | 1.32% | 1.39% | 7.06% | 1.91% |
Efficiency Ratio | 57% | 59% | 58% | 214% | 56% |
Net Interest Margin (Annual) | 1.98% | 1.63% | 2.00% | 2.70% | 2.72% |
Net charge-offs (LTM) / Loans | 0.52% | 0.26% | 0.25% | 0.48% | 0.58% |
Common Dividend Payout | 38% | 24% | 32% | 101% | 24% |
CET1 Ratio | 13.1% | 13.1% | 13.2% | 15.0% | 15.3% |
Supplementary Leverage Ratio (SLR) | 6.9% | 5.4% | 5.6% | 6.1% | 6.1% |
Liquidity Coverage Ratio (LCR) | 110% | 110% | 110% | 112% | 112% |
CreditSights View
AS OF 15 Jul 2024We moved back down to a Market perform on JPM following the SVB debacle and subsequent selloff; JPM was (rightfully) viewed as a flight-to-quality name amid the volatility, but continues to trade that way with spreads anchored 5-10 bp tighter to money center peers even after the rally. Supply could be a modest relative value technical headwind, though YTD issuance volumes have not been nearly as bad as feared; the prospects of a significantly watered-down Basel III endgame also reduces any supply overhang. There’s still value against broader corporates though JPM is no longer offering positive carry over IG, and there remain no real concerns with the core credit: the strength and resiliency of the diverse franchises has been on full display the past several years.
Recommendation Reviewed: July 15, 2024
Recommendation Changed: April 17, 2023