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The largest banking institution in the U.S is still JPMorgan Chase & Co. (JPM, Financial) with approximately $3.9 trillion in total assets. Last year, the banking conglomerate generated $121.6 billion in total revenue and $48.3 billion in net income. It operates through four primary segments.
Consumer & Community Banking offers deposit, investment and lending products, payments and other services to consumers and small businesses such as mortgage lending, credit card, auto loan and leasing services.
Corporate & Investment Banking provides investment banking products and services, including corporate strategy and advisory, equity and debt markets capital-raising services as well as loan origination and syndication. This segment also offers securities services, including custody, fund accounting and administration and securities lending products for asset managers, insurance companies and investment funds.
Commercial Banking provides lending, payments, investment banking and asset management to small business, large companies, local governments and nonprofit clients. It also provides commercial real estate banking services to investors, developers and owners of multifamily, office, retail, industrial and affordable housing properties.
Asset & Wealth Management offers multiasset investment management solutions in equities, fixed income, alternatives and money market funds to institutional clients and retail investor. Also included in this segment are retirement products and services, brokerage, custody, trusts and estates, loans, mortgages, deposits and investment management products.
JPMorgan has a history dating back to 1799 and currently has a market capitalization of $335 billion.
Investor day highlights
At its investor day in May, JPMorgan said capital ratios are expected to increase. The company believes it has sufficient capital levels to support its growth outlook. The bank raised its internal Common Equity Tier 1 (CET1) ratio target to between 12.5% and 13% to reflect a higher global systemically important bank surcharge as well as a potentially higher stress capital buffer.
Growth is also expected in the consumer segment. The consumer banking segment is expected to incur $32 billion in expenses in 2022, which includes $7.5 billion in investments in technology, distribution and the wealth management business. JPMorgan has added approximately 1,100 financial advisors over the past four years.
JPMorgan's asset management business is growing. The bank now has roughly $4.3 trillion in assets under supervision, making it the sixth-largest investment firm in the country based on assets under management with Blackrock (BLK, Financial) still in first place.
The company's credit losses remain muted. JPMorgan expects credit losses to remain relatively stable at better than pre-Covid levels. Despite the chances of a looming recession, the company expects the provision for losses to drift slowly higher going forward. This follows a $902 million reserve buildup in the first quarter.
Financial review
In April, the bank reported strong first-quarter 2022 results with net income of $8.3 billion and return on total capital employed of 16% and return on equity of 13%. Average loans increased $1.1 trillion, or 5%, compared to the prior period. The company’s balance sheet is one of the best in the industry with capital ratios significantly above those required by regulators.
Valuation
Analyst earnings per share estimates for 2022 are approximately $11.41 and for 2023, the average estimate is $12.85. That puts JPMorgan selling at 10 times current year earnings and 9 times forward earnings.
Banks are more typically valued at price-book value to account for the volatility in net earnings. At the end of the first quarter, book value per share was $86.16 and tangible book value per share was $69.58. JPMorgan’s current price-book value ratio of 1.3 times is at a 52-week low and in the middle of the range over the past 10 years.
JPMorgan pays a common dividend of $1 per share, which equates to an above-average dividend yield of 3.51% currently. The company has also been an active buyer of its owns shares, repurchasing $1.7 billion in common stock during the first quarter.
Guru trades
Gurus who have purchased JPMorgan stock recently include Charles Brandes (Trades, Portfolio) and Ray Dalio (Trades, Portfolio). Gurus who have reduced or sold out of their positions include Jim Simons (Trades, Portfolio)' Renaissance Technologies and PRIMECAP Management (Trades, Portfolio).
Conclusion
Despite a decent chance of a recessionary environment over the next 12 to 18 months, JPMorgan should be able to withstand the storm with its fortress-like balance sheet. During the last major economic downturn, the company was able to utilize it strong liquidity to acquire financial assets on the cheap. The company’s current valuation and high dividend yield make this an attractive long-term investment opportunity.
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