JPMorgan Stock: the Popular Bad Boy of Banking?
All this talk about JPMorgan Chase’s (JPM) reputation problems can be particularly unsettling for its conservative shareholders, many of whom assumed that banking post-financial crisis was a non-controversial business good for steady income. In fact, it appears that the scandals so far have done little to change long-term fortunes for the bank or its shareholders. While it’s very bad to get accused of manipulating energy markets, taking ridiculously risky trading positions, providing false testimony, strong-arming debt collections, covering up for Bernie Madoff, and ducking responsibility for screw-ups, a rising dividend and fast-growing profits can cover a wealth of sins.
JPMorgan remains, easily, one of the most recommended shares on Wall Street. In fact, only a handful of analysts say anything less than overweight position now, and many of those positive positions were reiterated even as those reputation-damaging accusations flowed from the bank in recent months. The worst of it started in April 2012 when news reports revealed that one of its London traders had somehow executed trades that eventually led to a $6.2 billion trading loss. In ensuing months, news of various unrelated regulatory issues and lawsuits dribbled out. The New York Times pulled together that collection of its regulatory problems above on May 2 – it faces investigation and regulatory actions from several federal agencies – included a couple most shareholders hadn’t yet heard of.
Some shareholder groups have called for more board responsibility, a group of overseers that responded to the trading event by firing employees but not Chairman and CEO Jamie Dimon or other board members. (The risk committee took no responsibility at all.) In February, a group of shareholders filed a resolution to force Dimon to drop one of his titles. On Monday, an influential group called Institutional Shareholder Services called for ousting three members of the risk policy committee because of “material failures of stewardship and risk oversight.”
But we’ve heard little to suggest that any of these issues seriously threaten the profits that keep JPMorgan’s dividend reliable and its share price rising. There is not a lot of faith that regulators can impose anything particularly painful on JPMorgan, even if it’s guilty on all counts. Perhaps sentiment for the shares will change as details come to light, but neither institutional nor individual investors are fleeing at the moment. JPMorgan has over the past year out-performed the Boy Scouts of banking, two companies that please regulators be generally being risk-averse, Wells Fargo (WFC) and US Bancorp (USB), as seen in a stock chart.
JPMorgan trades at a slight discount to Wells Fargo and US Bancorp, its PE ratio at a bit less than 9, vs. closer to 11 for the clean-cut banks. Morgan's dividend yield, at about 3.2%, is about the same as Wells Fargo's and higher than the yield at US Bancorp. But return on assets -- a measure of how effectively a bank produces profits -- shows JPMorgan a long-time laggard.
Still, investors continue to swoon.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.
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