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One of the largest and most respected banks in the world, JPMorgan Chase (JPM +0.11%) certainly has come a long way since the financial crisis. But does that mean the stock is a good investment right now? We asked two of our contributors -- one bullish and the other a little more cautious -- to share some of their thoughts on the bank. Here's what they had to say.
Dan Caplinger: JPMorgan Chase has a lot going for it. The company just finished at or near the top in customer satisfaction among banks in all four major regions of the country, taking advantage of the extensive bank-branch network that it has built up through multiple acquisitions over the past decade or so. The company doesn't shy away from customer-service problems, instead having gotten a strong reputation for dealing with issues well when they do occur and setting out to prevent their repeating in the future.
In addition, the bank is looking forward to new opportunities. The company's ChaseNet electronic payments system could hit $50 billion in transactions next year, and the remainder of JPMorgan's merchant-processing business has made it a major challenger to well-known card networks. The Chase Pay app could resonate more with merchants than other mobile-payment platforms and that could help JPMorgan tap into a huge, fast-growing market.
With returns on equity topping costs of capital by about four percentage points, concerns about JPMorgan's recent quarterly results are overblown. The bank does have challenges to overcome in its commercial banking, asset management, and corporate and investment banking divisions. Yet consumer banking has continued to prosper and that should give JPMorgan a solid foundation on which to build future growth.
Matt Frankel: Dan is absolutely right that JPMorgan Chase has quite a bit going for it. And, to be perfectly clear, I'm not completely bearish on the bank -- rather, I think there are several areas of concern that investors should keep an eye on over the next few quarters.
For starters, interest margins are at historic lows across the banking sector. In fact, during the second quarter of 2015, the Federal Reserve reported that the overall net interest margin for the industry was 2.97%, down from a peak of 4.91% in 1994. JPMorgan Chase was significantly worse than average at just 2.1%, below peers Bank of America (2.2%) and Wells Fargo (3%).
The company missed expectations for the third quarter and saw sharp year-over-year revenue declines in investment banking, asset management, and commercial banking. Granted, this was to be expected due to the volatile credit markets and stock market correction that took place during the third quarter, but JPMorgan Chase's revenue plunge was among the worst in the industry.
Now, as I wrote shortly after the earnings release, most of the negative issues plaguing the bank are temporary, and things actually look pretty good from a long-term perspective. However, the global economy is still rather volatile, investment banking revenue could take an even bigger hit if the market weakens, and several other catalysts that drove revenue downward in the third quarter could continue.
I simply feel that while JPMorgan will be a long-term winner, there are more attractive stocks in the banking sector right now, and with a lot less exposure to the volatile revenue streams of investment banking, trading, and wealth management.
