It’s one thing for an investor to be bullish on the stock market in general. Being a “strategic bull” generally means picking targets over all asset classes or at least within sectors to produce upsized gains. A dual goal of Oggonomics is to help grow wealth over time by selecting better sectors and strategies in good times and helping better defensive strategies in times of caution. Many investors are still quite bullish on the financial sector of banks, brokerages, and other lenders. Since the zenith of the pandemic’s stock market panic many stocks in the financial services sector have fully recovered and some have risen exponentially. Now the question is which of the financial leaders has the most upside left for investors.
Bank of America Corporation (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) are the two go-to money-center banks that are the most common of the largest banks with massive branch counts around the country. These banks also serve as bulge-bracket investment banking giants, wealth managers, and both have large domestic and foreign trading operations. BofA in many ways is now the only rival when it comes to Chase locations. They have almost the same exact business models from an outsider’s view. Almost. Oggonomics is looking to see whether BofA or J.P. Morgan Chase & Co. is more attractive as a stock heading into the second half of 2024 and nearing 2025.
As of July 9, the year-to-date (YTD) gain for the S&P 500 was 17% — versus “only” 11% for financials via the Financial Select Sector SPDR (NYSE Arca: XLF). BofA’s gain was 23.6% YTD, versus 22.5% for JPMorgan Chase shares. Over the last year, BofA leads JPMorgan Chase by about the same lead — 45.9% versus 44.3%. Both are impressive gains and no investor would really be upset they owned either bank even if it means they missed 1.5 percentage points.
Oggonomics is takin the long approach here rather than trying to predict which bank will respond better to their upcoming earnings report. Some analysts are even worried that some metrics may contract at BofA and at Chase for credit metrics as the economy is slowing. Others are looking at the Fed’s next 100 basis point move downward as the catalyst — even if Jerome Powell and the other voting Fed governors want more proof inflation is contracting before cutting interest rates.
DIVIDEND & BUYBACKS
Where things get a bit dicey in the BAC/JPM comparison is on relative valuations. BofA has a slightly better dividend yield at 2.41% versus JPMorgan Chase’s 2.27% yield. Just keep in mind that the recent stress tests allowed for some dividend hikes and additional bank stock buybacks, and both could skew what “screens” show based on Q1 valuation snapshots.
JPMorgan Chase just hiked its dividend per share to $1.25 from $1.15 and also announced a $30 billion stock buyback. JPMorgan did also warn that the Federal Reserve overestimated its revenues, expenses and losses which are excluded from net income. Still, JPM is alone as the only systemically important financial institution approved to announce dividend hikes for its common stock twice over the last year. BofA’s post-test announcement included a plan to hike its dividend to $0.26 from $0.24 per share.
CEOs of TODAY… VERSUS TOMORROW
Jamie Dimon has prided himself for making sure that JPMorgan Chase has always had a bullet-proof or “fortress” balance sheet. He has even maintained that his bank would have survived the global financial crisis without the government’s bailout money. It is still undeniable that Brian Moynihan has done a great job as CEO of BofA for the last decade. Still, Dimon has a much longer tenure than Moynihan and Dimon is considered the King of Kings when the bankers all get together.
A wild card event could be coming at either bank. It will happen. One day. But when? Each of the bank’s CEO “replacements” could make for some drastic changes to operations and the bank cultures in the future years after such a change. Both bank leaders are CEO and Chairman. Either banker could choose to stay on as non-executive Chairman of the Board to convey to investors that any changes will be slow and will be monitored by heavy adult supervision. Here is the age of each:
- BofA’s Moynihan is 64 years young;
- and JPM’s Jamie Dimon is 68 years young.
Will location play a role in either bank CEO succession plan? Both banks are likely to have a multi-step succession process, and both banks have extensive teams internally that should yield the next leaders rather than hiring from the outside. Dimon and J.P. Morgan Chase have their headquarters in the high-tax zone of New York City, while headquarters for Moynihan and Bank of America is in Charlotte, North Carolina.
VALUATIONS
Most metrics show that J.P. Morgan Chase is more expensive than Bank of America. That fortress balance sheet and a longstanding history as “the safest of the big banks” is why. A screen from FinViz shows that JPMorgan Chase leads BofA in many valuation metrics:
- return percentages on ROA (1.28 vs 0.77)
- return percentages on ROE (15.6 vs 8.7)
- return percentages on ROI (6.3 vs 4.0)
- and the current ratio of 1.52 vs 1.00.
JPMorgan does screen as having a higher Long-Term Debt/Equity ratio of 1.29 versus 0.98 for BofA; but the total Debt/Equity ratios are so close at 2.30 for BofA (versus 2.39 for JPM) that it may not matter. Dimon leads BofA’s Brian Moynihan handily on profitability metrics:
- profit margins (19.2% vs. 12.7%)
- operating margins (25.2% vs 15%).
Where these two banks really stand apart beyond valuation multiples is that BofA’s $326 billion market cap is not even 55% of JPMorgan Chase’s $599 billion market cap. This also translates to book value ratios of 1.96 for Team Dimon versus 1.23 for Team Moynihan.
WHAT UPSIDE?
Where the “strategic” part of investing comes into play is over which stock may still have the most upside. And by the “most” it does imply there is more upside ahead — which is, of course, no guarantee that either stock will rise any further. The crux of the review points that, if BofA’s internal metrics hold up and keep improving, Bank of America’s stock has more room to run than JPMorgan Chase’s stock. Is that a potential outperformance of 20%, 25% or even 50%? Predicting that would require a crystal ball.
But what if today is as good as it ever gets? As long as JPMorgan Chase maintains its fortress balance sheet then no other major money-center and “too big to fail” bank should be able to rival Chase if the economy really weakens and a bear market comes about. J.P. Morgan Chase is perhaps the best bank to own if the economy hits skid row. Just keep in mind that its stock would likely fall then as well — just maybe not as much.
WHAT ANALYSTS SAY…
Speaking of analyst calls, these are the last analyst calls during June and July on each Bank.
Bank of America has seen multiple recent analyst upgrades and/or price target hikes:
- BAC raised to Neutral from Underweight and target raised to $42 from $37 at Piper Sandler (July 9);
- BAC maintained Hold but target raised to $41 from $39 at Jefferies (July 3);
- BAC raised to Buy from Neutral with a $48 target at Seaport (July 2);
- BAC reiterated Outperform and target raised to $43 from $41 at Evercore ISI (July 3);
- BAC raised to Outperform from Market Perform and target to $46 from $37 at KBW (June 14);
- and shortly ahead of and after the last earnings report, BAC had at least 8 noted price target hikes in March and April alone.
JPMorgan Chase’s analyst brigade has taken a much more cautious stance than the BofA analyst community. These are some of the calls seen recently:
- maintained Market Perform and target raised to $211 from $209 at KBW (July 9);
- downgraded to Peer Perform from Outperform at Wolfe Research (July 8);
- reiterated Buy and target raised to $239 from $230 at Jefferies (July 3);
- maintained Outperform with same $210 target at Evercore ISI (July 3);
And on May 21, JPMorgan Chase saw several analyst calls. JPM was reiterated as Buy and its target raised to $224 from $219 at UBS while the same day saw Morgan Stanley maintain its Overweight rating with a target cut to $214 from $216. Baird maintained its Neutral rating and raised its target to $185 from $175 and Piper Sandler reiterated its Overweight rating and raised its target to $220 from $215.
Is it possible that both bank stocks are actually overvalued after such monumental runs? J.P. Morgan Chase’s stock price of $208.50 compares to FinViz’s consensus target price of about $215. Bank of America’s stock price of $41.62 compares to the FinViz consensus target price of $42.38.
BIG FOOTPRINTS (GIANTS, TOO BIG TO FAIL!)
You are about to see why each bank is considered to be “too big to fail.” These banks have giant balance sheets and Tracking bank branches for any bank can be a tedious metric, but here are some basic stats that each bank has offered up in their recent press releases.
Bank of America’s stats come from multiple sources, as follows:
- $3.27 trillion in total assets (Q1-2024 balance sheet);
- 213,000 employees at 2023-end, down about 4,000 year/year (multiple sources),
- serves around 69 million consumer and small business clients (pre-earnings press release),
- approximately 3,800 retail financial centers (pre-earnings press release),
- approximately 15,000 ATMs (pre-earnings press release),
- approximately 57 million verified digital users (pre-earnings press release),
- and supports approximately 4 million small business households (pre-earnings press release).
JPMorgan Chase is somewhat harder to tally at the present time as the bank purchased First Republic Bank from the FDIC in 2023 and that added more than 500,000 First Republic customers. The annual report showed 309,926 employees at 2023-end, up over 10,000 (293,723) year/year and shows that JPM serves around 80 million individuals, families and businesses. Here are some of the key stats from JPMorgan Chase, using various sources:
- $4.09 trillion in total assets (Q1-2024 balance sheet);
- 4,897 branch locations (annual report);
- serve around 82 million U.S. consumers and 6.4 million small businesses (annual report);
- approximately 67 million active digital customers (annual report);
- over 15,000 ATMs (multiple third-party sources).
IN THE END
Both BofA and Chase investors and customers may have to adapt to significant changes ahead. How the public views these changes may be quite different than how investors view the changes. Overdraft fee limitations and fees on late credit card payments have all been coming and are in various stages of being fought. How these impact each bank ahead is up to each bank to deal with. It could mean new charges for the rest of us who are not late. Will you pay a monthly charge for checks? Or what about charging for access to trading or online apps? This part of the equation is unknown ahead.
If you asked each CEO what they thought about their own banks on a standalone basis and against each other, each would likely give the “Thumbs Up!” sign and each would prefer their own bank. As earnings season kicks off in July, it seems that BofA still has more room for improvement in the eye of the Federal Reserve than Chase — and that would allow for a larger upside if shareholders are willing to pay more on a price to book value (per share) metric.
Again, this strategic report is aimed at longer-term views and is not a view of the next earnings reports due in the coming days. It will still be interesting to see how each of the banks perform after their earnings. Just keep in mind that JPMorgan Chase’s earnings will be out ahead of Bank of America by a few days, but BofA shareholders will likely try to judge BofA’s earnings after they delve deep into what JPM and Jamie Dimon have to say.
