According to a Forbes article, the nation’s strongest and safest bank, JPMorgan Chase & Co. (NYSE:JPM) is now finding itself in unfamiliar territory as it is being impounded by all quarters, including investors and regulators. This article aims to compare JPMorgan’s performance to its closest peers and see whether JPMorgan has actually become the new bad bank.
Just a few days ago, the regulators downgraded JPMorgan Chase & Co. (NYSE:JPM) and demanded improvement in its management. The Office of the Comptroller of the Currency downgraded JPMorgan in a confidential scoreboard to level 3, meaning the bank’s board’s abilities may be insufficient. Reuters reported that this downgrade is not solely because of the London Whale’s outsized bets, however, I believes his trades are at least one of the major reasons for the downgrade.
The London Whale’s trading loss has led JPMorgan’s executives to be invited to Washington more often for Congressional testimony, a trend more seen at Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C) and Goldman Sachs Group, Inc. (NYSE:GS) .
Financials
JPMorgan Chase & Co. (NYSE:JPM)’s fourth quarter earnings saw a jump of 53% on higher revenues and continued strengthening credit. The bank reported a profit of $5.69 billion up from $3.73 billion a year ago. Revenues for the quarter of $24.38 billion were up 9.8% over the same time period.
In contrast, profits for the fourth quarter of 2012 plunged 63% at Bank of America Corp (NYSE:BAC) due to charges related to a dispute with Fannie Mae. According to Wall Street Journal, the bank’s revenues for the same quarter also fell, though part of the drop was associated to the accounting issues arising from the way the settlements were booked and changes in the value of the bank’s debt.
The bank also witnessed a 25% decline in its revenues as its non-interest income fell 41%. Revenues in its core consumer and business banking segment also saw a decline. However, on the whole, the bank showed some progress and growth. Bank of America Corp (NYSE:BAC)a is the second-largest bank in America by assets.
A similar trend was witnessed at Citigroup when it reported its fourth quarter performance. The results remained far short of forecasts on higher litigation charges. Overall, the bank’s bottom line increased 25% from a year ago. However, operating earnings of $0.69 per share fell short of the expected $0.96. Revenues for the same quarter increased 8.7%.
The fourth quarter profits at Goldman Sachs saw an over two-fold increase from a year ago, while revenues increased 53%. The results were positively impacted by strong gains in debt and equity underwriting businesses. Trading revenues also supported the quarter’s bottom line.
Liquidity & Capital Position
At the end of the full year 2012, JPMorgan reported a Tier 1 capital ratio of 12.6%, up from the prior year’s 12.3%. Its liquidity position, represented by its deposit-to-loan ratio improved from 156 in 2011 to 163. JPMorgan Chase & Co. (NYSE:JPM)’s projected Q4 tier 1 common capital ratio came in at 6.8%, just under Citigroup’s 6.9%, which is the highest among the most recent stress test results.
Bank of America Corp (NYSE:BAC) reported a Tier 1 capital ratio of 12.89%, up from its prior year’s 12.4%. The bank’s loan-to-deposit ratio came in at 82%, compared to 90%.
Citigroup’s capital position, as measured by its Tier 1 capital ratio, was 14.06%, up from the prior year’s 13.55%. The bank’s loan to deposit ratio remained at 58% at the end of the full year 2012.
The Tier 1 capital ratio for Goldman Sachs was 16.7% at the end of 2012, compared with 13.8% at the end of 2011.
Valuations
JPMorgan Chase & Co. (NYSE:JPM) is currently trading at a moderate 4% discount to its most recent quarter’s book value. This is compared to 38% and 27% discounts for Bank of America Corp (NYSE:BAC) and Citigroup, while Goldman Sachs is trading in line with its book value.
Conclusion
A comparison with the peers revealed that JPMorgan Chase & Co. (NYSE:JPM) has turned from the safest bank to the new bad bank. Despite posting superior performance during the recent quarters, the bank’s capital plan was only conditionally approved by the Fed as the regulators believed the bank exhibited weaknesses that required immediate attention. The bank’s liquidity and capital positions are also not one of the strongest at the moment.
The article JPM: From Safest to the New Bad Bank originally appeared on Fool.com and is written by Adnan Khan.
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