What JPMorgan actually does
JPMorgan Chase is the largest bank in the United States and one of the biggest in the world. It was formed in 2000 through a merger, and its roots go back to institutions founded in the 1800s, including the one set up by financier J.P. Morgan. Its headquarters are in New York City.
The bank runs four main businesses:
- Consumer and community banking. Chase branches, credit cards, mortgages and everyday accounts.
- Corporate and investment bank. Advising on deals, trading and payment services for large clients.
- Commercial banking. Lending and services for mid-sized and large businesses.
- Asset and wealth management. Investing money for individuals and institutions.
How the business makes money
Banks earn mainly from net interest income, the difference between what they pay on deposits and charge on loans, plus fees from cards, advice and trading. Because the businesses are so varied, a slowdown in one area is often offset by another.
The dividend story
JPMorgan pays a quarterly dividend and has increased it regularly since the financial crisis. It cut its payout sharply in 2009 during that crisis, which is a useful reminder that even strong banks can cut when conditions are severe.
Large US banks also have to pass annual stress tests set by the Federal Reserve, and these influence how much they may return to shareholders. That means regulators have a say in the dividend, in addition to the bank’s own earnings.
What to keep an eye on
- Interest rates. They shape lending profit and the value of its bond holdings.
- Credit quality. A recession raises the number of borrowers who fail to repay.
- Regulation. Capital rules can limit how much cash is returned.
- Succession and size. It is a huge organisation whose leadership matters.
Quick take
JPMorgan is the benchmark large bank, with a reasonable yield and a growing dividend. Remember that a bank’s payout rises and falls with the economic cycle in a way that consumer staples do not.