Under CEO Jamie Dimon, JPMorgan Chase (JPM 1.73%) has displayed prudent cash management and a fortress balance sheet, which propelled it into becoming the largest bank in the U.S. by asset and market capitalization.
There have long been questions about a succession plan at JPMorgan Chase, but Dimon has repeatedly brushed them off, saying retirement was always five years away. His tone changed though during the bank's latest Investor Day event earlier this month when Dimon said the timetable for retirement is "not five years anymore."
With Jamie Dimon's retirement now more a reality in the next several years, is the bank stock still a buy? Let's find out.
NYSE: JPM
Key Data Points
Jamie Dimon and JPMorgan Chase's fortress balance sheet
When investors think of JPMorgan Chase, many can't help but think of Jamie Dimon, the longtime CEO who took over the top role in 2006. Dimon helped JPMorgan navigate and thrive across strong economic times as well as multiple recessions thanks to his focus on maintaining a "fortress balance sheet" at the bank.
A fortress balance sheet means the bank has enough capital and liquidity to withstand economic downturns and financial shocks. This allows the bank to continue to provide funding during downturns but also gives it capital to make strategic acquisitions when no other banks are willing to step up.
To maintain a solid financial foundation, JPMorgan Chase keeps high levels of cash, bonds, and other assets, which can quickly be converted to cash if necessary. The bank also boasts strong capital ratios, such as the common equity Tier 1 (CET1) capital ratio.
This ratio measures how much core capital a bank has relative to its risk-weighted assets and shows how well it could absorb a financial shock. JPMorgan's CET1 ratio is consistently above its peers. In the first quarter, its ratio came in around 15% (higher is better), outpacing its peers -- Bank of America (11.9%), Citigroup (13.5%) and Wells Fargo (11.2%).
JPMorgan Chase's strong financial foundation enabled it to make strategic investments at times when other banks were pulling back on lending and raising capital. In 2008, Washington Mutual was the largest bank failure ever. JPMorgan stood ready to scoop up the bank's deposits, assets, and certain liabilities for $1.9 billion, propelling it to become the largest bank in the U.S.
This prudence was on display again as JPMorgan took a cautious approach to inflationary pressures and the rising interest rates in 2021-22. While other banks were adding loans to their books hand over fist, JPMorgan took a patient approach and "hoarded cash," which ultimately allowed it to acquire First Republic Bank's deposits and most of its assets for around $10 billion.
Here's who could be next in line for JPMorgan Chase's top role
JPMorgan has had a long history of prudent capital management, much of which is credited to Jamie Dimon and his nearly two-decade tenure. With Dimon's retirement on the horizon, investors may wonder if the bank can continue to be a stalwart in the industry.
Rumors have been circulating about potential successors within JPMorgan Chase. Earlier this year, the bank promoted some top lieutenants to senior roles, giving them more experience running JPMorgan's more complex operations.
Image source: Getty Images.
The bank recently expanded its commercial and investment bank, combining JPMorgan's global investment banking, commercial banking, and corporate banking, as well as markets, securities services, and global payments. Jennifer Piepszak and Troy Rohrbaugh were promoted to become co-CEOs of this expanded banking business.
According to many experts, Piepszak has a slight edge, given the importance of investment banking to JPMorgan's overall business. Piepszak has been with the bank for nearly three decades in various roles, most recently as co-CEO of Consumer and Community Banking and chief financial officer before that.
Other possible successors include Marianne Lake, CEO of consumer and community banking, and Mary Erdoes, CEO of asset and wealth management.
Is JPMorgan Chase a buy?
Jamie Dimon has been a key part of JPMorgan's success over the past couple of decades, and his departure would certainly be a hit for the bank. However, the transition won't happen overnight, and it looks like Dimon and JPMorgan are taking a patient approach to selecting a successor for the top role.
If the bank selects someone internally, which appears to be the case, that person will have years of experience under Dimon and will have seen how the bank has navigated across different environments from the inside.
The bank has a strong brand and a stout balance sheet, with $1.5 trillion in available cash and liquid short-term securities. It is also well-positioned to benefit from higher interest rates, and recently raised its net interest income guidance for the year by $1 billion.
With its firm financial foundation and strong branding, the bank is well-positioned for the remainder of Dimon's tenure and beyond and remains a solid bank stock to hold for the long haul.
