JPMorgan Needs Jamie Dimon
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Will Jamie Dimon leave JPMorgan Chase (NYSE: JPM)? The media has been speculating as to whether the CEO of the bank may leave if he loses his position as the Chairman. This is going to be tough for the board of directors, but I believe the board will keep Jamie Dimon as he’s just too valuable to the bank.
Stock return since Jamie Dimon became CEO
Jamie Dimon became the CEO of JPMorgan Chase in 2005. He has done an excellent job of leading and managing the bank over the tenure of his leadership. The stock has appreciated 39.33% since 2005. In comparison, Bank of America (NYSE: BAC) shares have lost 73.31% and Citigroup (NYSE: C) has declined 89.49% over the same period.
What has been different about JPMorgan? In summary, it's the leadership. The company’s CEO has done an excellent job of managing risk and diversifying the business. Up until 2007, banks were going all-in on housing. JPMorgan continued to diversify its business activities by focusing on a broad range of fee income. The banking division didn’t represent a substantial percentage of JPMorgan’s earnings at the time, and it still doesn’t to this day. This is how JPMorgan was able to avoid the housing collapse.
Source: JPMorgan Chase
The company operates in five different business segments: Consumer & Banking, Corporate & Investment Bank, Commercial Banking, Asset Management, along with Corporate/Private Equity. Consumer banking represented 40% of the company’s revenue in the first quarter of 2013.
The consumer banking division grew in size due to the acquisition of Washington Mutual. The Washington Mutual acquisition in 2008 resulted in the number of banking branches to increase from 3,151 in Q4 2007 to 5,467 in Q4 2008. The number of checking accounts nearly doubled from 10.8 million in the fourth quarter of 2007 to 24.5 million in the fourth quarter of 2008. JPMorgan's consumer and community banking business nearly doubled in size after its acquisition of Washington Mutual bank. After the acquisition, every Washington Mutual branch was converted into a Chase Bank.
JPMorgan is the best at risk management
Despite the London Whale incident that resulted in a $6 billion loss last year, the company’s performance over the long-term has been fairly admirable when compared to other banks. Therefore, I find it highly unlikely that Jamie Dimon will be dismissed as Chairman. Jamie Dimon has been able to turn the consumer lending division into a profitable entity despite the acquisition of Washington Mutual. In fact, in its first-quarter 2013 earnings report, the consumer banking division generated $2.5 billion in net income.
Jamie Dimon has done a praiseworthy job of turning around the consumer banking business and has been able to grow its entire fee driven businesses over the past five years. Jamie Dimon has also improved the net income margin of JPMorgan from 10.21% in the first quarter of 2005 to 23.82% in the first quarter of 2013. During Dimon's tenure, the bank has been able to double its net profitability, which means that the business has been well managed.
Despite the sheer amount of respect I have towards JPMorgan, I also believe investors should take a close look at Bank of America. The stock has a lot of upside potential as the CEO of Bank of America is looking to cut down on expenses in non-performing business divisions. This should lead to a greater amount of net income in the future. The CEO of Bank of America, Brian Moynihan, believes that the bank can generate an additional $8 billion in net income through proper spending cuts. In its most recent quarter, the bank was also able to report a 233% increase in earnings. Analysts anticipate the bank to report 272% earnings growth for 2013.
Citigroup reported a 30% increase in net income year-over-year in the first quarter of 2013. The company’s improvement in net income was driven by better revenue (revenue grew year-over-year by 6%) along with declining costs in its lending activities. The provision for credit losses and benefits and claims declined 16% year-over-year. Top-line growth, along with declining expenses in lending activities, is what led to Citigroup’s strong quarter. Analysts anticipate the bank to grow earnings 14% on average over the next five years. The projected growth in earnings makes the 17.5 earnings multiple reasonable.
JPMorgan has done a marvelous job of historically out-performing its peers. The diversified business, paired with strong management, has led to decent returns. Investors looking for deep value plays should consider taking a second glance at Bank of America or Citigroup.
Jamie Dimon, from a performance standpoint, has done well, well enough to merit a re-election as Chairman of JPMorgan Chase. If Jamie Dimon leaves the bank, it would probably be a great loss for shareholders
With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan is a buy today, check out The Motley Fool's premium research report on the company. Click here now for instant access!
Alexander Cho has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!