JPMorgan (JPM) is one of the more attractive trades of the major bank stocks rallying and outperforming the S&P YTD. JPMorgan has favorable metrics and returns for investors compared to its peers. Current shareholders should hold long-term while interested investors should consider this period as an opportune entry point to buy JPMorgan at a discount. The $5 billion CIO debacle alongside LIBOR headlines brought JPMorgan's price down significantly in 2012. In the three months from April to June 2012, JPMorgan dropped from the top U.S. bank by market cap at $46 per share, to losing its top standing toWells Fargo (WFC), trading at $31 per share. Since that 2012 low, JPMorgan has recovered to a high of $41 per share in mid-September. Recent headlines have stagnated the price for weeks but JPMorgan still offers investors the most opportunity for long-term returns.
Wells Fargo, Bank of America (BAC), U.S. Bancorp (USB) andCitigroup (C) are the major US banks that are most comparable to JPMorgan. JPMorgan's $154 billion market cap is the second-highest behind Wells Fargo's $183 billion. JPMorgan's stock is the highest among the banks; but, its 9.4 price-to-earnings ratio is the lowest. US Bancorp' price is around 12.5 time's earnings, Wells Fargo is around 11.2 times earnings; both Bank of America and Citigroup's price are under 10 times earnings. JPMorgan's price-to-book is around 0.8, Citigroup is around 0.5 and Bank of America is around 0.4. US Bancorp's price-to-book ratio is around 1.7 while Wells Fargo's around 1.24.
JPMorgan's $4.32 EPS and $1.20 annualized dividend are the highest among major banks. Citigroup's $3.45 EPS and Wells Fargo's $0.88 annualized dividend are the next highest behind JPMorgan. Its 2.6 price-to-sales ratio is also lower than both US Bancorp's 5.02 and Wells Fargo's 3.73. JPMorgan's 0.73% five year sales growth is the second-highest to Wells Fargo's 8.9% while its 9.8% sales deficit in the past quarter, YOY is the second lowest to Wells Fargo's 17.9% deficit. JPMorgan's 9.2% ROE, 26.2% operating margin and 19.1% profit margin are third-highest behind Wells Fargo and US Bancorp. Its 3.68 debt-to-equity ratio is the highest among the banks, Wells Fargo's around 1.22.
JPMorgan and Wells Fargo's beta scores are very close together and currently range from 1.2 to 1.33. Both of these stocks' relative volumes are slightly below one. JPMorgan's average daily volume is around 30 million, only lower than Citigroup's around 35 million and Bank of America's 133 million. JPMorgan's stock has had the weakest performance YTD through late September; it's still up 24.65%. JPMorgan's stock is up 9% in the past month, trailing only Citigroup's 10.1% and Bank of America's 9.5%. JPMorgan's stock has increasedaround 13.5% since its last earnings release.
JPMorgan's second quarter earnings release detailed declining revenues and it's near term outlook. JPMorgan's market cap declined from $175 billion in the first quarter to $135 billion due to the massive trading loss from the CIO. Second quarter total net revenue was $22.18 billion, decreasing 17%, YOY. Total noninterest expense was $14.96 billion, decreasing 11%, YOY. The provision for credit losses totaled $214 million, decreasing 88%, YOY. Second quarter net income totaled $4.96 billion, decreasing 9%, YOY. JPMorgan noted that the global economy continued to expand in 2012, albeit at a slowed pace from uncertainty in Europe and slow growth in Asia.
The US housing sector continues to show strong growth in the near term; multifamily and rentals and homebuilders are benefiting from increasing demands. The stabilization that seems to be underway in Europe is easing concerns in financial markets worldwide. There is still trepidation surrounding future US fiscal policy concerning taxes and the deficit. Second quarter revenue decreased primarily due to the CIO trading loss. Delinquency trends improved and decreased credit provisions, net charge-offs declined from $3 billion to $2.3 billion, YOY. Global investment fees increased 29%, business banking loan originations increased 14% and retail channel originations increased a record 26%, YOY.
There are a few headlines that have come during September that are hampering JPMorgan's recent rally. The major bank stocks have declined by over 70% in the past year. A recent report from the OCC found that much of the decline was due to the $5.8 billion loss JPMorgan took in the second quarter. JPMorgan's $420 million trading loss negatively impacted its peers YOY metrics. Goldman Sachs (GS), Citigroup, Bank of America and JPMorgan account for over 90% of the derivative trading activity. JPMorgan alone accounts for 25% of derivative trading activity. JPMorgan's loss led to $884 million in trading revenue for Citigroup, $680 million in trading revenue for Bank of America, and $88 million in trading revenue for Goldman Sachs.
The OCC is also investigating JPMorgan for allegedly laundering money relating to drug cartels. The DOJ is currently reviewing JPMorgan's compliance with the Bank Secrecy Act. The FERC is also considering suspending JPMorgan from the electricity market for providing misleading data for regulators investigating electricity trading standards in California. FERC is investigating due to state officials complaining that JPMorgan's traders manipulated the bids to illegally acquire around $73 million in the California electricity market.
On the positive note, S&P recently raised its ratings for several of JPMorgan's classes and commercial certificates; it removed the CreditWatch on JPMorgan's C and D classes as well. S&P cited JPMorgan's diverse portfolio that generates cash flow from 72 retail properties in 20 different states. JPMorgan recently announced thenew headquarters location will be in Australia in order to bolster the bank's long-standing presence in the market.
JPMorgan is loaning $4 million and mentorship time to help Academy Securities in an effort to increase employment for veterans while it's also invested an undisclosed amount into the online retailer Zando. JPMorgan's already invested in Dafiti in Brazil, Zalando in German and Lamoda in Russia is order to capitalize on e-commerce and growing fashion markets. JPMorgan's endured several headwinds in 2012 but its long-term viability offers higher returns on investment for shareholders than most major U.S. banks.