JPMorgan Chase (JPM 0.59%) reported pretty solid results, but it gave investors reason to be cautious as we head into 2022. In this Fool Live video clip, recorded on Jan. 20, Fool.com contributors Matt Frankel and Jason Hall discuss the results and why JPMorgan Chase's stock got hit so hard.
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Matt Frankel: JPMorgan chase, since earnings, has been the worst performer of these three. Let me quickly share this chart right here. This is a five-day chart of Bank of America (BAC 0.37%), Goldman Sachs (GS -0.58%), and JPMorgan Chase. JPMorgan Chase is down more than 11% in the past five days, and that includes that little lift today that you're seeing right there. Why did JPMorgan fall so badly after earnings? At first glance, you might not think it should have. Jason, I'm not sure if you are aware of this, but out of the three, JPMorgan was the only one that beat on both revenue and earnings.
Hall: Markets are weird sometimes. There's a story, keep going.
Frankel: There's a story. Jamie Dimon, next to Warren Buffett, he's probably the CEO that people just shut up and listen when he talks. He said, expressed concerns about expenses to a higher extent than most other banks did. I mentioned Bank of America and expect their expenses to be flat year over year. JPMorgan expects an 8% increase in expenses. When you're talking about a bank that's doing $70, $80 billion worth of expenses every year, that's billions and billions of dollars.
Non-interest expense was up 11% year over year in the fourth quarter already. They're feeling this wage pressure, they completely acknowledge that they're going to have to pay people more. They're going to have higher expenses. But their business looks strong. Deposits are up 17% year over year, people are still saving pretty nicely. Their loan portfolio is up 6% year over year, so people are borrowing money once again, remember that kind of paused during the height of the pandemic. They say they're going to miss their return on equity targets over the next couple of years because of these expenses. I think this is just a disconnect between JPMorgan and some of the other banks, which is why their stock reacted so poorly.
Hall: Yeah, well, I think part of it too is maybe a revaluing too, not just the disconnects. Because in terms of book value, this is still one of the more expensive banks. If you're not going to be able to generate over a multiple year period the same returns on equity, the market is going to value that in and we think we've seen some of that.
Frankel: This is still best of breed when it comes to the big banks.
Hall: No doubt.
Frankel: It's an expensive bank like Jason just mentioned, but you get what you pay for, you get a little more for what you pay for now that the price is a little bit lower. If you are a long-term investor and you hear that the bank might miss its return on equity targets over the next year or two, that's a buying opportunity. If you believe in JPMorgan Chase's business, if you believed in it a month ago, there's no reason that should change now, in fact that should look a little bit more attractive now that the stock is on a discount.