JPM - JP Morgan

[gfp]

Isn't that over $31.5 Billion of capital return?  You have JPM earning $42 Billion for 2018?

 

JPMorgan Chase Plans Dividend Increse and $20.7 Billion Capital Repurchase Program.

 

Quarterly dividend up from $0.58 per common share to $0.80 per common share.

 

This seems low on the payout scale--I get something like 75% of 2018 earnings?

[racemize]

Isn't that over $31.5 Billion of capital return?  You have JPM earning $42 Billion for 2018?

 

JPMorgan Chase Plans Dividend Increse and $20.7 Billion Capital Repurchase Program.

 

Quarterly dividend up from $0.58 per common share to $0.80 per common share.

 

This seems low on the payout scale--I get something like 75% of 2018 earnings?

 

I was using the incremental dividend rather than the full amount, which isn't right.  So I retract, it's right at 100% on my estimate.

[Viking]

JPM released results on Friday and they were very good. On the conference call they were asked about:

1.) the US economy; the response was ‘good and accelerating’

2.) trade policy; the response was ‘on people’s minds but not impacting decision making’

3.) flattening yield curve; the response was ‘not an issue as long as economy continues to grow’

4.) rates paid on consumer deposits; the response was ‘large institution are not raising rates paid’

 

The Q&A on the JPM call is alaways a good listen. https://www.jpmorganchase.com/corporate/investor-relations/quarterly-earnings.htm

 

The bank shares seem to be discounting an imminent recession. If a recession is not coming soon the bank stocks will do very well (as they are already cheap and earnings are growing and share buybacks will be meaningful).

[John Hjorth]

Outlined - Financial Times [september 12^th 2018] : Jamie Dimon claims he could beat Donald Trump in election.

 

... But, he said he could beat Mr. Trump. "I'm as tough as he is, I'm smarter than he is. I would be fine. He could punch me all he wants, it wouldn't work with me. I'd fight right back."

A bit later in the article:

Within minutes, JPMorgan issued a statement clarifying that Mr. Dimon was not declaring his candidacy. ....

 

- - - o 0 o - - -

 

Tough guy from the poorer part of Queens getting carried a bit away. It happens bank investing also becomes entertaining! [ : - ) ]

[dcollon]

Great discussion with Jamie Dimon

 

http://www.aei.org/events/livestream-event-a-conversation-with-jamie-dimon-chairman-and-ceo-of-jpmorgan-chase-co/

[gfp]

https://www.bloomberg.com/news/articles/2018-10-26/jpmorgan-s-secret-punishment-u-s-halted-its-growth-for-years?srnd=premium

 

This was surprising to me. The shackles are off and JPM will be expanding to new states

[SHDL]

https://www.bloomberg.com/news/articles/2018-10-26/jpmorgan-s-secret-punishment-u-s-halted-its-growth-for-years?srnd=premium

 

This was surprising to me. The shackles are off and JPM will be expanding to new states

 

Interesting.  I was always wondering why there was no Chase branch in my city despite the rather prominent presence of JPM's private bank...

[John Hjorth]

https://www.bloomberg.com/news/articles/2018-10-26/jpmorgan-s-secret-punishment-u-s-halted-its-growth-for-years?srnd=premium

 

This was surprising to me. The shackles are off and JPM will be expanding to new states.

 

I was also absolutely baffled over reading this back in October. JPM is is now on the move in Greater Washington area. 6 new branches there at year end.

[Viking]

JPM has a long runway in terms of retail/branch growth in the US. It is hard for non-US investors to understand how fractured the US banking industry is. Yes, it consolodated massively during the great financial crisis. However, the big banks have lots of room to grow further (look at the big 5 banks in Canada as an example of what real concentration is when it comes to retail banking).

 

Share buybacks are a great idea when the shares are cheap (like right now). However, the big banks will need to find ways to grow their top line moving forward.

 

Slow and methodical expansion into new markets to grow retail banking is likely a great use of retained earnings but requires a multiyear perspective. This strategy also likely fits well with the growth of mobile (don’t need as many branches) and you can reach a much larger population with each branch combined with mobile. The cost to serve the new areas with your mobile offerings is effectively zero. I would still expect the total branch count to shrink over time as branches are reduced in existing markets to outnumber branches added in new markets. Over time, this could be the gift that keeps on giving. Retail banking is already very profitable and it could become even better as top line growth combines with flat to lower costs (resulting in positive operating leverage we have seen the past few years). JPM will slowly increase chase/retail tentacles into all major markets.

 

I am very happy to hear BAC also starting to talk about executing a similar strategy. It takes CEO’s with a long term perspective to effectively execute this strategy.

 

“JPMorgan Chase (NYSE: JPM) lacks a retail presence in 15 of the 50 most-populated metros in the country, according to an analysis by The Business Journals. Expand that list to the largest 75 metros in the U.S., and Chase's untapped potential nearly doubles to 29 markets. The biggest gaps in Chase's footprint largely are clustered on the East Coast and in the Midwest, the Business Journals' analysis shows.”

 

https://www.bizjournals.com/boston/news/2018/12/20/jpmorgans-jamie-dimon-has-big-expansion-plans-and.html?ana=yahoo&yptr=yahoo

[meiroy]

"

@PlanMaestro

Jan 9

 

(and If there’s one large American bank to worry about is the beloved JP Morgan)

 

#ConfessYourUnpopularOpinion"

 

 

[John Hjorth]

Saw that, too, meiroy,

 

Where is your independent thinking here while posting?

[chesko182]

I asked him on Twitter he hasn't replied! would love to hear his thoughts. It's one of my biggest holdings.

[John Hjorth]

Well, chesko182,

 

You have an opinion of your own, right?

[John Hjorth]

JPM 2018Q4 & full year earnings report was out on January 15^th 2019.

 

Excellent results. ROTCE for 2018 at 17 percent. This must have been the best year for JPM ever with regard to earnings, I think. No signs of material weaknesses in the reported losses.

 

I particularly took notice of the following in the CEO commentary from Mr. Dimon:

Dimon concluded: “...... As we head into 2019, we urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment. Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone.”

 

- - - o 0 o - - -

 

.

 

To me, Mr. Dimon is a US patriot.

[dcollon]

Jamie Dimon in Davos (scroll down for the video)

 

https://www.cnbc.com/2019/01/23/jp-morgans-jamie-dimon-takes-no-satisfaction-in-bitcoins-nosedive--.html

 

 

[John Hjorth]

Thank you very much for sharing, dcollon,

 

But the quality of the interview is sup-par. Too many interviewers with individual agendas, and only one interviewed person. Not the perfect setup for a professional interview. I appreciate the comments from Mr. Dimon though.

[Spekulatius]

Thank you very much for sharing, dcollon,

 

But the quality of the interview is sup-par. Too many interviewers with individual agendas, and only one interviewed person. Not the perfect setup for a professional interview. I appreciate the comments from Mr. Dimon though.

 

The annual billionaire & celebrity alumni meetup in Davos is probably the most overrated conference of the present day.

[John Hjorth]

Here is is a calculated 2017 - 2018 survey of earnings and other key metrics for the Big Four US banks.

[John Hjorth]

CNBC - Finance [February 14^th 2019] : JP Morgan is rolling out the first US bank-backed cryptocurrency to transform payments business.

[vince]

Great listening to Dimon. Got the sense he feels that bbacks at these prices do ‘t offer great IRRs, which is difficult to understand.

 

At 2x Tangible book, the retail return potential of buybacks seems muted. I don’t think they will do more than 15% ROE over the cycle, if that.

 

So following that thought, lets assume that tangible book remains constant but returns on tangible book increase and therefore net income increases to the point where today's price is a 7 multiple of earnings 3 years out.  Would you still think that 2 times tangible book is at the very high end of valuation?  Returns that investors receive from owning Jpm are ultimately going to depend on distributable earnings and increases in earnings generated from retained earnings.  Imo, focusing on Tbv for valuation purposes only makes sense if you are going to compare their returns on tb to the risk free rate.  If you had a bond that paid 15% AND you could reinvest a portion of the coupon at 15% (obviously their is a difference in risk) NOBODY would suggest that 2 times is the upper end of value.  And yet that is exactly what people are claiming when they say that. 

[Spekulatius]

Great listening to Dimon. Got the sense he feels that bbacks at these prices do ‘t offer great IRRs, which is difficult to understand.

 

At 2x Tangible book, the retail return potential of buybacks seems muted. I don’t think they will do more than 15% ROE over the cycle, if that.

 

 

So following that thought, lets assume that tangible book remains constant but returns on tangible book increase and therefore net income increases to the point where today's price is a 7 multiple of earnings 3 years out.  Would you still think that 2 times tangible book is at the very high end of valuation?  Returns that investors receive from owning Jpm are ultimately going to depend on distributable earnings and increases in earnings generated from retained earnings.  Imo, focusing on Tbv for valuation purposes only makes sense if you are going to compare their returns on tb to the risk free rate.  If you had a bond that paid 15% AND you could reinvest a portion of the coupon at 15% (obviously their is a difference in risk) NOBODY would suggest that 2 times is the upper end of value.  And yet that is exactly what people are claiming when they say that.

 

Sorry for the stuttering. When I am stating that 2x tangible book isn’t cheap, I am effectively stating that I don’t think that returns on tangible equity over the cycle will be higher than 15% and probably less than that. Currently, we have JPM with a $55 tangible book and $9 in earnings , so this is roughly a 16% ROTCE. This is not expensive and maybe even cheap for a $100 stock. I think the problem comes from guessing what the earnings and ROTCE going to be the in the future of course. Banking and in particular investment banking (~30% of JPM’s  earnings ) tend to be cyclical and depending on interest rate trends. If JPM can show that they  become less cyclical, and keep the 15% average over the whole cycle, I think the stock can rerate over 2 x tangible book.

 

Another way to frame this is can you synthesize the JPM banking conglomerate of 2/3 consumer/commercial and 1/3 investment banking cheaper by investing in WFC (or pick another consumer & commercial bank of your choice ) and GS (the latter trades below tangible book and a 14% ROTCE) ? I am guessing that the latter combination looks cheaper, but maybe JPM combined is better?

[vince]

Great listening to Dimon. Got the sense he feels that bbacks at these prices do ‘t offer great IRRs, which is difficult to understand.

 

At 2x Tangible book, the retail return potential of buybacks seems muted. I don’t think they will do more than 15% ROE over the cycle, if that.

 

 

 

So following that thought, lets assume that tangible book remains constant but returns on tangible book increase and therefore net income increases to the point where today's price is a 7 multiple of earnings 3 years out.  Would you still think that 2 times tangible book is at the very high end of valuation?  Returns that investors receive from owning Jpm are ultimately going to depend on distributable earnings and increases in earnings generated from retained earnings.  Imo, focusing on Tbv for valuation purposes only makes sense if you are going to compare their returns on tb to the risk free rate.  If you had a bond that paid 15% AND you could reinvest a portion of the coupon at 15% (obviously their is a difference in risk) NOBODY would suggest that 2 times is the upper end of value.  And yet that is exactly what people are claiming when they say that.

 

Sorry for the stuttering. When I am stating that 2x tangible book isn’t cheap, I am effectively stating that I don’t think that returns on tangible equity over the cycle will be higher than 15% and probably less than that. Currently, we have JPM with a $55 tangible book and $9 in earnings , so this is roughly a 16% ROTCE. This is not expensive and maybe even cheap for a $100 stock. I think the problem comes from guessing what the earnings and ROTCE going to be the in the future of course. Banking and in particular investment banking (~30% of JPM’s  earnings ) tend to be cyclical and depending on interest rate trends. If JPM can show that they  become less cyclical, and keep the 15% average over the whole cycle, I think the stock can rerate over 2 x tangible book.

 

Another way to frame this is can you synthesize the JPM banking conglomerate of 2/3 consumer/commercial and 1/3 investment banking cheaper by investing in WFC (or pick another consumer & commercial bank of your choice ) and GS (the latter trades below tangible book and a 14% ROTCE) ? I am guessing that the latter combination looks cheaper, but maybe JPM combined is better?

 

Agree with everything you say however I believe that 15% plus is achievable.  Take a look at their return on assets, still below what a good to great bank is capable of. And if that's true it suggests that 15% plus Rotce is sustainable (even with the higher equity to assets required).  I do admit that "over the cycle" does make it harder to sustain the average and higher interest rates, although good for earnings, could change the bond comparison scenario significantly.  I regrettably don't own the stock but it's getting tempting at these prices.  One other thing that caught my eye....earnings of 32.5 billion and market cap of 325 billion means a 10 multiple.  However, 9 dollars of eps and a 99 dollar stock price equals an 11 multiple.  Earnings per share uses weighted average shares, which obviously overstates the denominator when shares outstanding are shrinking.  But a 10% difference between stock price to eps versus market cap to net earnings is extreme....what am I missing?

[Rasputin]

Preferred dividends of $1.6 B

[Spekulatius]

[One other thing that caught my eye....earnings of 32.5 billion and market cap of 325 billion means a 10 multiple.  However, 9 dollars of eps and a 99 dollar stock price equals an 11 multiple.  Earnings per share uses weighted average shares, which obviously overstates the denominator when shares outstanding are shrinking.  But a 10% difference between stock price to eps versus market cap to net earnings is extreme....what am I missing?

 

Just gleaming over the Q4 earnings presentation, the net income available to shareholders ($30.7B) is less than the consolidated net income ($32.5B). But even they explains just a bit more than half the differential (5.6%). I agree that JPM does look cheap, assumin they can keep the numbers up. I am think they will look better in an economic downturn that some of the more profit challenged peers, because with a higher profitability , it will be easier to absorb higher credit losses etc.

[vince]

[One other thing that caught my eye....earnings of 32.5 billion and market cap of 325 billion means a 10 multiple.  However, 9 dollars of eps and a 99 dollar stock price equals an 11 multiple.  Earnings per share uses weighted average shares, which obviously overstates the denominator when shares outstanding are shrinking.  But a 10% difference between stock price to eps versus market cap to net earnings is extreme....what am I missing?

 

Just gleaming over the Q4 earnings presentation, the net income available to shareholders ($30.7B) is less than the consolidated net income ($32.5B). But even they explains just a bit more than half the differential (5.6%). I agree that JPM does look cheap, assumin they can keep the numbers up. I am think they will look better in an economic downturn that some of the more profit challenged peers, because with a higher profitability , it will be easier to absorb higher credit losses etc.

 

 

 

Thanks guys, you think the rest is from the weighted averages shares calculation?