JPMorgan Chase (JPM -0.40%) and Morgan Stanley (MS 1.05%) are two of the biggest investment banks in the world. But these financial services giants are also leaders in different markets and have titanium brands that are known the world over.
This bear market cycle has been a mixed bag for financial firms -- banks and wealth managers have done relatively well, while investment banks and asset managers suffered. So how did these two financial behemoths performed, and which of the two is the better buy today?
How they are different
While these two investment banking giants have major similarities, there are some key differences between them.
JPMorgan Chase operates the country's largest consumer bank, Chase. It has four major segments -- consumer and community banking; corporate and investment banking; commercial banking; and asset and wealth management.
The largest, consumer banking, generated $14.3 billion in revenue in the third quarter, about 42.4% of the institution's total. Investment banking produced about 35.1% of revenue, but in the prior-year quarter, it was about 42%. Asset management represents about 13.4% of revenue, while commercial banking accounts for 9%.
Morgan Stanley has a much smaller consumer banking arm, but through its acquisition of E*Trade a few years ago, it is one of the largest brokerage firms and wealth managers in the United States.
Morgan Stanley has three primary business lines: institutional securities, which includes investment banking, securities trading, and corporate lending; wealth management, which includes brokerage, investment advisory and wealth management, banking, among other services; and investment management, which includes managing retail funds, institutional assets, alternative investments, and other products.
In the third quarter, wealth management generated about 47% of revenue, while institutional securities accounted for 45% -- but that was down from 51% in the prior-year period. Investment management accounted for about 9% of revenue.
So, what does this all mean?
Which one is a better buy?
This market cycle features the type of conditions that JPMorgan Chase was built to withstand. That's evident in its ability to generate higher revenue -- its top line jumped 10% year over in the third quarter. While its investment banking revenue was down, consumer banking and wealth management revenue was up. Earnings were lower year over year as the company had to set aside higher provisions for credit losses.
Morgan Stanley does not have quite the diversity of revenue as JPMorgan Chase, which is less reliant on investment banking and has a much bigger consumer banking arm that has been buoyed by robust lending and higher interest rates. Revenue in the most recent quarter was down by about 11% year over year for Morgan Stanley. However, Morgan Stanley has added ballast in growing its wealth management business, which kept the firm pretty steady in rough seas.
So, the edge there goes to JPMorgan Chase. It also wins in several other categories, including valuation -- its 10.6 price-to-earnings ratio is lower than that of Morgan Stanley. JPMorgan Chase also has a strong balance sheet with $1.4 trillion in cash and $90 billion in operating cash flow, and it's extremely efficient with a return on equity of 12.8% and an efficiency ratio of 59% -- which is down from the end of 2021.
While the next few quarters could be difficult, I would consider both of these stocks good long-term buys. And both of them offer robust dividend payouts. But ultimately, if I had to pick one, it would be JPMorgan Chase, which has more balanced revenue streams, a fortress balance sheet, a better valuation, excellent efficiency, and is built for the long haul.
