JPMorgan Chase vs. Goldman Sachs: An Overview

JPMorgan Chase and Goldman Sachs are two of the largest and most respected investment banks. Both have seen rising stock performance over the past several years, benefiting largely from low interest rates and Federal Reserve policies. Below, we'll take a look at where both companies are headed and the likelihood of positive momentum with interest rates expected to rise even further.

Since the Fed began raising interest rates in Dec. 2015, the stocks prices of JPMorgan and Goldman Sachs tell very different stories. From Dec. 2015 to May 2019, JPMorgan shares rose 61%, while Goldman Sachs’ stock has lost 1%. Goldman Sachs shares were at a multi-year high until Nov. 2018, when a lawsuit unfolded revealing fraud among two Goldman Sachs bankers involved in an Abu Dhabi fund that may cost the bank millions in refunds and legal costs.

Since Dec. 2015 the Fed has increased the federal funds rate from 0.25% to 2.5%. While these increases directly affect the borrowing of funds between federal reserve banks, they also form the base rate for the fixed income investing market and send signals to investors on the market’s direction for everything from savings accounts to junk bonds. As such, this also affects a line item in bank balance sheets known as net interest income.

Typically, rising risk-free rates are somewhat of a negative factor for equities as investors often weigh the risk-return trade-offs more acutely and move money to take advantage of higher risk-free returns. However, in the case of rising rates, financials and banks stocks in particular have one advantage over other sectors—net interest income typically rises when they can increase borrowing rates for investors while still keeping standard deposit and savings rates low.

Key Takeaways

  • JPM has handily outperformed GS since the Fed started raising interest rates in Dec. 2015.
  • JPM saw an increase in revenue and net income during the first quarter of 2019, while GS saw a decline.
  • GS has invested in expanding its consumer lending business, Marcus, and purchase money management app, Clarity.
  • JPM, however, continues to hold an edge over GS as the latter works through the recently revealed fraud.

JPMorgan Chase

Key JPM Data
Market Cap $459.9 billion
52-week Range $91-$167
P/E Ratio 10.4
Return on Equity  17.3%
Dividend Yield 2.3%
3-Year Total Return 13.7%
Numbers as of July 2021

In JPMorgan’s second quarter 2021 results, the company had a net income of $11.9 billion on a revenue of $31.4 billion with a net interest income of $12.9 billion. This is compared with a net income of $8.7 billion in the first quarter of 2018 on a revenue of $28.5 billion.

Goldman Sachs

Key GS Data
Market Cap $123.9 billion
52-Week Range $185-$393 
P/E Ratio 6.8
Return on Equity 21%
Dividend Yield 2.1%
3-Year Total Return 17.8%
Numbers as of July 2021

Goldman Sachs has been making inroads into the personal finance market, launching its new Marcus platform for customers of all income levels and making a large acquisition that gives it the ability to also provide banking services for a broader range of consumers. These factors along with some cutting-edge technology infrastructure updates and a new CEO helped its stock price.

Management believes these factors and other growth projections will help to keep its outlook positive for the future, but as for the last six months or so, it appears the company and investors will have to face a number of challenges, including allegations around the fraud of two bankers who charged exorbitant fees and looted funds from a multimillion-dollar deal with the Abu Dhabi Fund also known as deal 1MDB.

In the second quarter of 2021, Goldman Sachs reported a net revenue of $15.4 billion, versus $10.1 billion in the first quarter of 2018, and a net income of $5.5 billion, versus $2.8 billion in Q1 2018. It reported a net interest income of $1.6 billion in the second quarter of 2021, versus $0.9 billion in the first quarter of 2018.

Special Considerations

JPMorgan has maintained and improved its edge over Goldman Sachs. As rates rose from Dec. 2015 to May 2019, JPMorgan Chase and Goldman Sachs shares have returned 61% and negative 1%, respectively. The 1MDB scandal has substantially widened the lead for JPMorgan Chase compared to Goldman Sachs.

Year-to-date, Goldman Sachs’ total return has rebounded nicely, coming in at 15% versus 11.3% for JPMorgan Chase. Troubled by past scandals, the 1MDB lawsuit could potentially tarnish both the near-term and longer-term outlook for Goldman Sachs as other banks such as JPMorgan Chase hope for continued strong momentum in a rising rate environment.

Key Differences

Some may argue that the GS sell-off could create a buying opportunity with the stock hovering at its 52-week support level. However, investors should proceed with caution as the expenses of the fraud deal unfold and other banks move forward with less risky circumstances.

JPMorgan has emerged from the financial crisis, leading the banking sector with one of the most rapid and effective Dodd-Frank regulatory implementations in the industry. This along with the rising rate environment has helped JPMorgan Chase to post superior returns to its competitor Goldman Sachs and the banking industry at large.