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Tickers in this Article: JPM, BAC, C, RJF, GS
Banking giant JPMorgan Chase (NYSE:JPM) relies on the U.S. for nearly 80% of its revenue. As such, its results are driven by the domestic market, and its second quarter results and expectations for the remainder of 2011 suggest profits will finally exceed pre-financial crisis levels. With steady earnings growth going forward, investors could see stock gains in excess of 50% within the next few years. TUTORIAL: Top Stock-Picking Strategies

Second Quarter Recap
Net revenues advanced 7% to $27.4 billion on the back of a 16% jump in investment banking revenue (26.6% of quarterly revenue). This unit competes with pure play rivals including Goldman Sachs (NYSE:GS) and Raymond James Financial (NYSE:RJF) and saw strong growth from underwriting debt and equity offerings as its clients looked to raise capital in financial markets. JPMorgan said it ranked first in terms of global investment banking fees earned for the first half of 2011.

Asset management posted a 23% jump in revenue to make up just over 9% of total revenue. Private equity revenue improved 12% (nearly 8% of quarterly revenue) while commercial banking revenue was also strong, growing 9% to account for almost 6% of total revenue. More modest growth was seen from Treasury & Securities Services, which grew the top line 3% (7% of revenues) from earning fees through taking custody of assets and helping clients manage their business finances. Rounding out the other divisions, retail financial services grew 2% (more than 29% of quarterly revenue) while credit card services fell 7% (14.2%).

Net income rose 13% to $5.4 billion and was attributed to the improved revenue trends at most businesses but also lower credit loss provisions in the credit card division and mortgage book, though the company was quick to point out that it continues to see "elevated losses in the mortgage and home equity portfolios." Earnings came in at $1.27 per diluted share, or 16% ahead of last year's second quarter.

For the full year, analysts project sales will fall slightly more than 4% to $100 billion and earnings of $4.89 per share, the last of which would result in year-over-year profit growth of almost 23%.

The Bottom Line
JPMorgan Chase ended the quarter with book value of $44.77 per share. Based on the current earnings projections for the year, return on equity (ROE) will be just about 11% to mark an almost complete recovery to pre-credit crisis levels. Back in 2006 and 2007, ROE averaged closer to 12% but dipped into the low single digits in 2008. (For more, see Book Value: How Reliable Is It For Investors?)

With 2011 marking a return to more normalized profit levels, JPMorgan will need to rely on growing its loan book and fee-generating businesses including investment banking, asset management, and private equity. The stock price currently trades at about 90% of book value and the multiple could improve with several more quarters of growth. Back in 2006, the price to book ratio was 147% and suggests the stock level could reach $65 within a few years. The wild card is of course if profit growth will be steady going forward, but right now JPMorgan appears well ahead of rivals Bank of America (NYSE:BAC) and Citigroup (NYSE:C) in finally putting the financial crisis behind it.

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