JPMorgan's Sub-Prime Bets Are Paying Off

| About: JPMorgan Chase (JPM)

JPMorgan Chase (JPM) reported a second-quarter 2011 net income of $5.4 billion, or $1.27 per share, this morning, beating the $1.20 analyst estimate. Revenue of $27.4 billion was up 7 percent over prior year, and up 6 percent over the prior quarter.

During the earnings conference call, Jamie Dimon, chairman and CEO, emphasized the company’s continued lead in global investment banking:

Our second-quarter earnings reflected strong performance across most of our businesses. The Investment Bank delivered strong earnings across most products and maintains its #1 ranking in Global Investment Banking Fees. Commercial Banking reported revenue growth and continued loan growth for the quarter. Retail Financial Services demonstrated good performance in Retail Banking but continued experience high losses for mortgage related issues.

JPM’s lead in global investments reflects the strategic choices JPMorgan made during the sub-prime crisis, especially the acquisition of Bear Stearns at a bargain price. It further reflects the company’s strong fundamentals, as we discussed in a previous piece, that make the stock one of the best picks in the financial industry, especially when it is compared with its peer Bank of America (BAC).

JPMorgan versus Bank of America Financial Performance Statistics in 2011


Bank of America




Operating Margins



Qtrly Earnings Growth (yoy):



Qtrly Revenue Growth (yoy):



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We would agree with Dimon’s conclusion that JPMorgan is facing “substantial opportunities” ahead, especially in the global investment industry where JPMorgan has the capabilities and the reputation to maintain its edge against the competition.

Disclosure: I am long JPM, BAC.