Both JPMorgan Chase & Company (NYSE: JPM) and Bank of America Corporation (NYSE: BAC) are members of the "big four" U.S. money center banks and two of the 20 largest banks worldwide. Both are well-established, multinational financial services firms that operate in all areas of investment banking, commercial banking and retail banking. An analyst or investor can make a solid case for investing in either company's stock; however, JPM appears to hold the strongest overall position.
Each bank greatly expanded its asset base through key acquisitions of distressed financial firms during the 2008 financial crisis. JPM acquired Bear Stearns & Company, while BAC picked up Countrywide Financial and Merrill Lynch & Company, two firms on the verge of bankruptcy. JPM was able to significantly add to its investment banking division by acquiring control of Bear Stearns, paying only $10 a share for a stock that had previously been trading at nearly $60 a share. BAC's acquisition of Countrywide also accomplished at very favorable terms, catapulted it into the position of being the leading mortgage servicer in the United States, with approximately one-fifth of the total U.S. home mortgage market.
The Case for JPMorgan Chase & Company
JPMorgan Chase & Company is the sixth largest bank in the world by assets, with total assets of $2.6 trillion. The bank as currently constituted is principally the result of the merger of JPM and Chase Manhattan Bank in 2000. The bank operates through four primary divisions: corporate and investment banking, consumer and community banking, commercial banking and asset management. JPM offers banking and financial services in more than 70 countries.
Banking industry analysts and investors who favor JPM stock can point to metrics such as total assets, return on assets (ROA) and operating margin. JPMorgan Chase leads all of the big U.S. banks in total assets and generates a better return from those assets than Bank of America, with an ROA ratio of 0.94% as compared to BAC's 0.69%.
JPM's operating efficiency appears better than BAC's, evidenced by its operating profit margin of 25.5% compared to BAC's 19%. JPM's market capitalization from 2013 to 2018 is $272.67 billion; BAC's market cap for the same period is $206.79 billion.
A final metric important to investors, the return-on-equity (ROE) ratio reveals JPM returning 10.18%, compared to BAC's ROE of 8.27%.
The Case for Bank of America Corporation
Through its 2008 acquisition of Merrill Lynch, Bank of America became the single largest wealth management company worldwide. BAC has a very strong retail banking base, being the only one of the big four U.S. banks with retail branches in all 50 states. It has $2.9 trillion in total assets and operates in almost 50 countries.
Analysts can argue in favor of Bank of America Corporation by pointing out earnings per share (EPS) growth rate, price-to-book (P/B) value and recent top-line growth that helped it achieve a third-quarter 2018 EPS of 66 cents, outperforming the previous year by 43%. BAC also boasts the lowest P/B ratio of any of the major U.S. banks. Its five-year average P/B value of only 0.87 continues to draw value investors to BAC's side.
A 2018-2019 stock buyback of nearly $20 billion indicates BAC's confidence in its cash flows and overall profitability going forward. Dividends for the same time period are expected to increase 25%, from 12 cents to 15 cents a share, which, combined with the stock buyback, would make this 12-month payout the largest in the bank's history.
While JPMorgan Chase stock appears to have the upper hand compared to Bank of America, it is important to continue monitoring changes to both companies standings in the market before and after investing in either one.