The most important statistic to me in the release of the fourth quarter financials of JPMorgan, Chase and Company (JPM) is the reported return on equity of 10 percent. This figure was down from 11 percent in the same quarter of 2012.
More interesting to me was the statement by the bank that "the return on tangible common equity would have been 15 percent without legal costs and exceptional items."
I find this to be a remarkable performance given that, according to statistics provided by Morningstar indicates that JPMorgan has only been in the 10- to 11- percent return on equity range in 2011 and 2012, but has to then go back to 2007 to get any better results.
JPMorgan Chase is still seemingly a very healthy bank even given all the regulatory and legal problems and "whale" problems that have existed over the past few years.
And, the most important thing about what is going on with respect to these regulatory and legal "things" is that performance seems to be relatively high and the "bad" stuff is getting resolved.
I believe that JPMorgan is a good bank and that Jamie Dimon is a top-flight leader. The performance of the company through the recession years confirms the fact that the JPMorgan "culture" is, by-and-large, an effective organizational culture.
The regulatory and legal problems that the company has been dealing with are not inconsistent with the problems other "too large to fail" banks have been facing and are a result, I believe, of the frothy credit environment that existed in the 20001.
My belief is that Jamie Dimon is getting hold of these problem areas and will create an environment that, through the rest of his tenure at the bank, will not get out of control again.
Over the past twenty years I have known a lot of very good executives that have been impacted by this environment. And, in very, very large organizations it is extremely difficult to control the emotional actions of all people.
I think that the performance of JPMorgan is showing that the fundamental culture of the company is sound. Otherwise, it would not be performing the way it has given all the charges and changes that are taking place in the organization.
And, the economic environment is not that good.
The bank reported that the corporate and investment banking saw net income fall 57 percent to $858 million. But, this number was affected by a $1.5 billion charge, a "funding valuation adjustment" that resulted from the change in how banks within the industry value their derivatives.
Equity underwriting revenues were up 65 percent as the market for IPOs was strong.
The fundamental "banking" business reflected the state of the markets in the fourth quarter. Commercial loans rose by about 7 percent, year-over-year, about in line with other large banks as well as with the industry.
The consumer bank experienced a rise in net income of 19 percent whereas the residential mortgage area dropped as a result of the higher interest rates of the last half of the year. Home loan originations feel by 54 percent.
In terms of expenses, JPMorgan is continuing to cut staff and by the end of 2014 may have the smallest number of employees of any bank of similar size.
I conclude by arguing that JPMorgan Chase is probably as strong as any of the biggest banks in the country and stands to benefit greatly from getting the regulatory and legal battles behind it. I do believe that within the next two years, JPMorgan Chase will be back earning at least a 15 percent return on shareholder's equity. Jamie Dimon will continue to lead the organization into its electronic future and, for the moment, I can't think of anyone I would rather have running my "large" bank than Jamie Dimon.