- JP Morgan seems poised to take leadership from Wells Fargo on its large international operations.
- Morgan has the largest asset base of any U.S. bank
- Morgan is becoming more aggressive in the U.S. consumer lending
Near the bottom of a correction all sorts of stocks can look very interesting. Assuming we are heading for another leg up in the market, as in the 2011 correction, one way to profit is by looking at banks.
On a new growth leg, the biggest U.S. banks are going to benefit from higher interest rates when they come, they all have very strong capital bases, something the U.S. government now monitors through regular “stress tests,” they can still work in the stock market, and they operate in dollars, the world’s strongest currency.
Biggest of the Big Four Banks
America’s “big four” banks – Citigroup (NYSE:C), Bank of America (BYSE:BAC), Wells Fargo (NYSE:WFC) and JP Morgan Chase (NYSE:JPM) – have moved in lockstep this year, and remain close to unchanged. But the group’s pacesetter has been Jamie Dimon’s JP Morgan, up 1% after the recent correction and with a dividend yielding of 2.79% at the start of trading on September 9.
Before this year, Wells Fargo was the banking pacesetter, its value having doubled over the last five years, thanks in part to the fact that it mainly does, well, banking. Wells is the U.S. leader in mortgages, it has a nationwide branch network, and it makes loans. Wells’ securities unit is not large, in comparison to the rest of the bank, it is not a huge underwriter, and it generally confines its activities to the domestic market.
Morgan Foreign Policies Matter
But Morgan’s status as a huge corporate adviser, underwriter, and analyst firm, with a global reach, seems to give it an advantage in the coming year.
Here are three examples of that reach from recent news. Its decision to take Nigerian bonds out of an emerging market index fund has grave implications for that country. Its downgrade of an Indian lender has hurt the credit market in that country. Morgan’s belief that uniform capital requirements will cause a capital shortfall has impacted the European Union.
U.S. Consumer Market Aggressiveness
In the U.S, the bank does much of its business under the Chase name. The consumer bank, run by former American Express executive Gordon Smith, is working with Visa (NYSE:V) to create ChaseNet, a system invisible to consumers under which it holds the consumer account, the merchant account, and does the processing through capacity leased with Visa. This results in higher fees, which it can invest in growing its share of the market.
JP Morgan has had a long road to recovery from the Great Recession and only got its price/book value over 1, on a consistent basis, this year. Wells trades at about 1.6 times its book value, and the other two big banks still trade at well below book. Morgan remains the largest U.S. bank on assets, with $2.4 trillion, and its global reach is only now starting to tell as the U.S. recovery matures and other global markets look to recover.
If you like banks, then JP Morgan stock today represents the best value, the best bet on global recovery among the big U.S. banks.