Entering text into the input field will update the search result below

JPMorgan: Best-Of-Breed Large-Cap U.S. Bank

Renaissance Research profile picture
Renaissance Research


  • JPMorgan was the biggest winner from the 2017 CCAR.
  • The bank’s fundamentals remain strong with solid loan growth, rising margins, improving cost-efficiency metrics and benign asset quality trends.
  • Elevated uncertainty over actions by global central banks bodes well for the bank’s FICC franchise.
  • We continue to prefer JPMorgan over Bank of America and Citigroup.

Higher dividends and buybacks

In our view, JPMorgan (NYSE:JPM) was the biggest winner from the 2017 CCAR (Comprehensive Capital Analysis and Review). Most investors had been expecting lower capital returns and particularly a more modest buyback. However, JPM has found the right balance between a strong capital position and attractive capital returns to shareholders. The bank increased its quarterly dividend to $0.56 per share from $0.50 per share, while the size of buybacks was boosted to $19.4B. As a result, the stock offers a 2.4% dividend plus a 5.9% buyback for a total shareholder yield of 8.3%.

JPM has recently mentioned that its minimum required CET1 capital ratio is 11%, around 140 bps lower than the bank has today. As such, JPM is likely to continue increasing its buybacks and dividends, given its strong capital position.

Strong FICC franchise

Global central banks have recently deepened uncertainty over their actions and the future path of rate hikes. First, European sovereign yields got a decent boost from hawkish statements made by the ECB (European Central Bank) President at a banking conference. Mario Draghi said that the threat of deflation risks had decreased. As a result, the yield on the 10-year German sovereign note has surged from 25 bps to 57 bps over the last two weeks.

Source: Bloomberg

The probability of a rate hike by the ECB has increased.

Source: Bloomberg

In addition, Mark Carney, the Bank of England’s governor, said that the regulator might need to raise its policy rate. That was unexpected given his dovish stance. Finally, New York Fed President William Dudley recently reaffirmed that the Fed had taken a more hawkish stance. Mr. Dudley said that a tightening labor market and gradual wage growth should trigger a pick-up in U.S. inflation. However, the bond market is pricing in a lower-for-longer interest rate environment in the U.S.

This article was written by

Renaissance Research profile picture
A buy-side equity research analyst and a deputy portfolio manager covering global financials.With 14 years of investment experience on both buy- and sell-side, I provide research coverage on U.S., European, LatAm and CEEMEA banks/financials, including fundamental analysis, DCF/multiples valuation, commentaries on price-sensitive events and actionable trading ideas. If you are interested in the topic, click the "Follow" button beside my name on the top of the page. Feel free to e-mail at renresearch2016@gmail.com

Analyst’s Disclosure: I am/we are long JPM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.