Over the years, JPMorgan Chase (JPM 1.66%) has solidified its position as one of the best-run banks in the U.S. Over the past decade-and-a-half, JPMorgan has thrived despite a challenging operating environment for banks that included multiple recessions and a decade of ultra-low interest rates, followed by the recent era of rapidly rising rates.
Since November, JPMorgan Chase stock has gained about 45% and is priced at the higher end of its historical averages. If you're considering buying JPMorgan stock today, here's what you need to know first.
JPMorgan Chase is prepared for whatever is thrown at it
JPMorgan Chase has $3.4 trillion in total assets, making it the largest bank in the U.S. It has 34% more assets than its closest competitor, Bank of America, and nearly twice as many assets as the third-largest bank, Wells Fargo.
This growth didn't happen overnight. JPMorgan has a long history of prudent capital management, allowing it to capitalize during downturns and grow alongside the U.S. economy when things are going well. One part of its success is the leadership of Jamie Dimon, chief executive officer since 2006.
Dimon led JPMorgan through the Great Recession from late-2007 to mid-2009, which saw some of the largest bank failures in U.S. history. When Washington Mutual went under in 2008, JPMorgan Chase's prudence put it in a position to acquire the bank's assets for $1.9 billion.
JPMorgan has long taken a patient approach to putting its capital to work. For example, during the pandemic, banks were flush with deposits as economic stimulus funds hit bank accounts, and personal savings rose to record levels as consumer spending slowed amid shutdowns.
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Many banks used this inflow of deposits to invest heavily in mortgage-backed securities or other loans despite the record-low interest rates at the time. Not JPMorgan. In early 2021, inflation was beginning to pick up, and Dimon told investors that the bank would look to protect the "fat tails," or the extreme risks outside of the norm, of rising inflation.
At the time, Dimon was concerned about accelerating inflation and rising interest rates, and sought to make the bank a "port of safety" for whatever storm may be on the horizon. The company effectively hoarded cash and patiently waited to put its capital to work.
That decision has paid off, reinforcing JPMorgan as one of the best-run banks in the U.S. Not only was it able to make loans at higher interest rates, but it was also well positioned amid the regional banking crisis last year. First Republic Bank, with $212 billion in assets, became the second-largest bank failure ever, and it was JPMorgan Chase that was best positioned to acquire its assets when the time came.
JPMorgan Chase is in a class of its own
JPMorgan is on firm financial footing and sits on a fortress balance sheet, which is evident when you compare its capital ratios to those of its peers.
One metric used in banking is the common equity tier 1 (CET1) ratio. The CET1 compares a bank's capital to its assets and shows how well it could absorb a financial shock. In the first quarter, JPMorgan's CET1 ratio came in about 15%, outpacing its peers, Bank of America (11.9%), Citigroup (13.5%), and Wells Fargo (11.2%).
Another key measure to evaluate banks is the return on tangible common equity (ROTCE). This metric shows how well a bank can generate earnings from its tangible common equity. In the first quarter, JPMorgan's ROTCE was 21%, compared to 12.7% at Bank of America, 7.6% at Citigroup, and 12.3% at Wells Fargo.
This outperformance has earned JPMorgan Chase stock a premium valuation compared to its peers. Today, the stock is valued at 2.39 times the bank's tangible book value, well above its peers and its 10-year average of 1.86.
JPM Price to Tangible Book Value data by YCharts
Is JPMorgan Chase stock a buy?
After its run-up during the past several months, JPMorgan Chase sits on the more expensive side of its valuation, which could limit its upside potential in the near term.
Despite this, JPMorgan is one of the most efficient banks at generating profits, and prudent capital management history helps it ride out and thrive across economic cycles, making it an excellent choice for investors taking a long-term approach.
