JPMorgan Feeling The Pinch As Expenses And Capital-Building Sap Earnings Momentum

There is a growing split right now between "Main Street" and "Wall Street" banks, with the larger, more complex banks taking a bigger hit from weaker investment banking, tougher capital requirements, and ongoing infrastructure investment, while comparatively simpler banks are enjoying the benefits of healthy loan demand and strong interest leverage. Such is the case for JPMorgan (NYSE:JPM), where the "Main Street" business is performing rather well, but other elements of the business are dragging on results.

These shares have more or less kept pace with other large banks since my last update but have definitely lost some ground to smaller "Main Street" banks, and I frankly expect that to continue for a couple more quarters given JPMorgan's need to reduce risk-weighted assets (or RWAs) to build capital and management's decision to keep reinvesting in the business (higher operating expenses / lower operating leverage). Still, for long-term investors, I do believe today's price is an attractive entry point and one that can reasonably expect to generate long-term total annualized returns in the double digits.

 

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JPMorgan Feeling The Pinch As Expenses And Capital-Building Sap Earnings Momentum