JPMorgan Is Still Less Risky Than Bank Of America

| About: JPMorgan Chase (JPM)

Warren Buffett’s purchase of a stake in Bank of America (NYSE:BAC) is certainly a vote of confidence for the ailing bank, but we believe that JPMorgan Chase (NYSE:JPM) is a better bet, due to better fundamentals and better technicals.

JP Morgan and Bank of America have a parallel history: They rode the real estate bubble of the 1980s, delivering their stockholders hefty gains. They took a dive in the early 1990s, as did the real estate bubble, only to recover handsomely by the late 1990s, thanks to the generous support of the American taxpayers. From 2001 to 2007, they both took the new ride of another, even bigger, real estate bubble — though Bank of America’s ride was faster than that of JP Morgan. They both took a new dive as the new bubble burst, and they both recovered, thanks — once again — to the generous support of American taxpayers.What does this parallel history means for investors?

These institutions won’t fail, because American taxpayers are always on the hook to buy a put to protect them against this prospect. But do they make good investments?

We do believe that banks still have many problems, and conservative investors should think twice before they delve into the sector. But aggressive investors may be better off placing their bets with JPMorgan for three reasons:

  • Better technical indicators. Actually, the charts for the two banks do not look terribly good. But JPMorgan stock's technicals aren't as bad as those of Bank of America: JPMorgan's stock trades below both its 200- and 100-day averages, but the 100-day average is still well above the 200-day average. Bank of America's 100-day average is trading below the 200-day average.
  • Better fundamentals. JP Morgan's financials are definitely better than those of Bank of America. The company pays a 2.5% dividend - much higher than the 0.40 percent of Bank of America - and much better than what investors can make by depositing money in either bank. JPMorgan has further better operating margins, and quarterly and annual revenue growth.

JPMorgan vs. Bank of America Financial Performance Statistics in 2011


Bank of America




Operating Margins



Qtrly Earnings Growth (yoy):



Qtrly Revenue Growth (yoy):




  • Better strategy. JPMorgan has made good strategic choices during the subprime crisis, picking up the assets of other financial companies and banks at bargain prices, including Bear Sterns and Washington Mutual. By contrast, Bank of America has made bad strategic choices during the crisis, picking up the liabilities of Countrywide Financial and Merrill Lynch. The aggressive corporate culture of these two companies, further, do not blend well with Bank Of America's conservative ethos.

Disclosure: I am long JPM, BAC.