JPMorgan Chase (NYSE: JPM) is the largest U.S. bank, with more than $2.6 trillion in total assets.
In this clip from Industry Focus: Financials, host Shannon Jones and Fool.com contributor Matthew Frankel give investors a high-level overview of this massive financial institution.
A full transcript follows the video.
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This video was recorded on July 9, 2018.
Shannon Jones: Let's start with the big behemoth here, Matt. Let's talk about JPMorgan Chase. For our listeners, they are scheduled to release earnings before opening bell on Friday, July 13th. This is the largest bank of the big four by assets, and really, in all respects, has been firing on all cylinders. Matt, let's talk a bit about their bread and butter business and how they make money.
Matt Frankel: Regardless of valuation, if you were looking for a best-in-breed bank, it's really tough to make the case against JPMorgan right now. As Shannon mentioned, they are the biggest of the four, and they've consistently grown since the financial crisis. They didn't do that poorly in the financial crisis, first of all. They've grown well since the financial crisis. They've pretty much been scandal-free. The growth continues. They continue to put up impressive numbers.
To quote one number, their loan portfolio grew by 8% year over year in the most recent quarter. They're benefiting really big from things like tax reform. Their investment banking division is doing really well. They actually had the No. 1 market share in global investment banking fees for the first quarter. JPMorgan is the best in breed. Apple is to the tech world as JPMorgan is to banking. If you want a bank that's really big, really good at what they do, growing rapidly, and doing everything right, JPMorgan is probably the one you want to look at.
Jones: In addition to growing in just about every area possible, just to dig into the specifics from last quarter, Matt, you mentioned the core loan portfolio growing 8%. Deposits also grew 6%. This was all while maintaining the quality of its loan portfolio, which is huge. You saw that provision for credit losses actually declined 11% year over year, and the percentage of non-performing assets were also down 7%. What that really means from an investing perspective is that JPMorgan is growing responsibly and can really grow quite impressively. There's not much to not like about JPMorgan.
Another thing that's really interesting is their efficiency ratio. Basically, what that is, the efficiency ratio is a quick and easy measure of a bank's ability to turn its resources into revenue. We love it when we see a bank's efficiency ratio under 50%. That's awesome. Under 60% is pretty good, too. JPMorgan last quarter was right there in the sweet spot at 56%. That was actually the lowest among the big four.
Also, in terms of profitability, a couple of other metrics to be aware of -- JP Morgan had a 15% return on equity. For listeners that aren't as familiar with that, it's basically a ratio that investors use to measure the amount of a company's income returned as shareholders equity. For us, when it comes to bank stocks, it's great when you see at least a 10% return on equity. So, really impressive to actually see JPMorgan at 15% return on equity last quarter.
Return on assets was 1.37%. Return on assets shows how profitable a bank is relative to its total assets, and how efficient management is at using its assets to generate earnings. Generally speaking, we do like to see ROA at least 1%. 1.37% is even better.
Frankel: All three of those numbers were, like you said, by far the best out of the big four, efficiency ratio in particular. For these big banks, it's really tough to hit that 50% number that you were stating because there's so much overhead in terms of their branch networks, for one thing. They have to invest so much money just to be able to keep up with the new internet-based banks. It's really hard for them to get their expenses down. For a big brick and mortar-based bank, I always like to see under 60%. By that metric, JPMorgan is really performing well for such a big institution.
Jones: Absolutely. Looking ahead to earnings, would love to see that efficiency ratio continue to come down. Matt, you mentioned internet banks. I came across this last week and I said I had to talk about it. JPMorgan just launched an online bank for millennials named Finn. I don't know about you, Matt, but whoever's in charge of the naming conventions for a lot of these mobile-based apps, I must say, please let me in that seat. [laughs] I don't think you can get much worse than the name Finn.
Basically, what Finn is, it's truly a mobile, no-fee checking and savings bank for millennials. You're talking about deposits by phone. You can even write a check by phone. Automatic saving, spending trackers, etcetera. It has a lot of the bells and whistles, although the interface looks pretty basic.
What's interesting about this particular launch for Finn is that you see JPMorgan strategically positioning itself to grab market share in areas where there is no JPMorgan Chase bank branch, which I think is really interesting. It actually rolled out in St Louis, where they don't have any banks, and they're looking to continue to expand across the U.S. We'll really be looking to see how this competes with some of those other internet-based banks.
Frankel: That's true. It's really interesting to point out that, including the big four, there are very few banks, if any, that are all over the U.S. This could definitely help broaden their reach. What internet-based banking does, it also dramatically cuts down on a bank's costs. Not only do they not have to build branches in those markets you mentioned that they're not in, but they save money on things like paper costs, employees. A check deposited through a mobile app costs a bank roughly one-tenth of what a teller-assisted deposit costs.
This ultimately can provide big cost advantages to banks, and help level the playing field with some of these up-and-comers that are offering free checking, free savings, better interest rates than everybody else because they don't have to pay for branches. This could help JPMorgan -- and, in time, some of the other big banks -- get a much more competitive advantage against these smaller players.
Matthew Frankel owns shares of AAPL. Shannon Jones has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.