JPMorgan And Dimon's 'Golden Age Of Banking' - An Assessment

Jul. 03, 2018 10:19 AM ETJPMorgan Chase & Co. (JPM)AAPL, AGCO, BAC, BLK, C, DE, DIA, GE, GS, HD, LOW, MS, SPY, USB, WFC47 Comments
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DoctoRx
26.46K Followers

Summary

  • JPM is trading 12% off its high but with record earnings recorded and growth projected.
  • It is also at about a 1/3 discount to the forward market multiple.
  • Yet JPM's CEO Jamie Dimon says a golden age of banking has arrived; is he right?
  • This analysis reviews his thinking and concludes that he may be right: but only for his bank amongst its peers.
  • The case is made that JPM deserves a higher relative multiple and probably a higher absolute multiple, as well.

Introduction - The case for a golden age of banking

One of the most interesting interviews with a corporate leader I have seen in some time was given by JPMorgan Chase's (NYSE:JPM) CEO, Jamie Dimon, on June 1. Per the Seeking Alpha transcript, the key and potentially actionable part of this telephone interview reads as follows:

Operator

Is there a bull case for the profitability of the banking industry over time, it just gets more efficient as you get more digitization - you know, fewer Brinks trucks driving cash around?

Jamie Dimon

You guys thought I was kidding when, years ago, I said you’re going to have a golden age of banking. I mean, you’re going to have a golden age of banking. You have a golden age of banking.

In the earlier part of the interview, and following this comment, Mr. Dimon goes on to provide some basic reasons why he has been saying this. Some of the reasons include:

  • Industry consolidation in the US.
  • High-tech nature of banking favors the biggest banks.
  • Several recurring revenue streams.
  • Improving regulatory regime.

It is important to understand that he is talking about a golden age for diversified financial institutions, not community banks that basically take deposits and make loans.

He puts this thesis in context of a mostly rosy scenario for the US economy, saying earlier in the interview:

... the world is going to hit an all-time low in unemployment sometime this year... even the perpetually worried IMF is talking about strong global growth.

Focusing on the US, he is ebullient about growth in the next year and beyond:

... the United States is the one where it’s been 2% a year for nine years [since the Great Recession], and kind of a cumulative 20%. But you’ve got to put that in perspective - while

This article was written by

DoctoRx profile picture
26.46K Followers
Over 40 years of investing in individual stocks. Retired physician (cardiologist). Also retired from various roles in the US pharmaceutical industry. Main focus is on growth stocks, mostly biotech and tech, but with fundamental value considerations. Secondary focus on macro trends driving asset allocation.

Disclosure: I am/we are long JPM, USB, MS, DE, HD, AAPL, GE. 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.

Additional disclosure: Not investment advice. I am not an investment adviser.

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