What: Shares of JPMorgan Chase (NYSE:JPM), the largest bank in the U.S. by assets, rallied by 13% in February according to S&P Capital IQ, reversing a double-digit decline in January, following a number of positive developments from its annual "Investor Day."
So what: For much of the early portion of February JPMorgan Chase simply rose with broader market, which wound up having an excellent month if you are an optimist. The real excitement came toward the end of the month when JPMorgan unveiled two key strategies for 2015 and beyond.
The first action took place almost immediately, with JPMorgan Chase announcing plans to close 300 branches across the U.S. over a two-year period. The move, which is expected to save the company $1.4 billion, is being made because fewer people are using tellers to complete transactions, and are instead utilizing mobile banking and ATMs. Based on data from JPMorgan, whereas 90% of all deposits were made with a teller in 2007, that figure had dropped to just 42% as of 2014. Additionally, the cost per deposit for a teller is $0.65 compared to a mobile deposit which costs JPMorgan Chase just $0.03. This doesn't mean the bank is ridding itself of its branches by any means, but it's a way of modernizing to the times and cutting costs.
CEO Jamie Dimon also made it clear that capital returns are going to take priority for JPMorgan Chase. While it's still at the mercy of regulators with regard to how much it's allowed to pay out via a dividend, ultimately the company would like to focus on a dividend payout ratio of 50%, up from its current target level of around 30%. Clearly this isn't an overnight change, but it's something for investors to potentially look forward to in the coming years assuming its balance sheet keeps improving.
Now what: Growth rates in certain operational segments at JPMorgan certainly have room to improve, but all things considered investors have to be generally happy with the way the company's deposits and loans are increasing, as well as with Dimon's plan to cut costs. Deposits and loans are the "old school" methods of growth for big banks, but these bread and butter basics are what ensure Chase has the income and assets to continue paying a substantial dividend to investors.
Chase has also beefed up its pursuit of higher net worth clientele. We've seen a nice bump up in its asset management unit's performance, and the branches themselves have begun more aggressively recruiting for its private client asset management services. High net worth clients tend to be less affected by economic fluctuations, thus they're the prime customer to have when volatility increases.
All together JPMorgan Chase is valued at just nine times forward earnings, is trading right around its book value, and is still well below a PEG ratio of two. In other words, I'd suggest there's still room to the upside for America's favorite bank.
Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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