For a long time during Japan’s post-bubble hangover, many foreign pension funds became so dizzy worrying about the country’s banks that they stopped investing in them altogether. In post-bubble America, however, there remains a misguided hope that clarity on the outlook for banks is just around the corner. JPMorgan Chase’s fourth-quarter results on Friday proved yet again that trying to estimate so-called normalised earnings for US lenders is a waste of time.
Forget that JPMorgan’s investment banking fees fell by 40 per cent year on year,or that fixed income revenues dropped by a 10th (excluding gains from the tightening of credit spreads) and equities by a quarter. These are obviously tough businesses when clients are uneasy. Retail and commercial banking are also clearly plays on the health of the economy. Besides, the concept of “normal” is ridiculous while the US has zero interest rates.
Rather, investors would be better served stepping back and having a good long look at what owning bank stocks like JPMorgan has done for them. Much was made of the 25 per cent bank rally since mid-November. So what? JPMorgan’s share price has been through today’s level of $35 twenty-odd times since 1997. In other words, the stock has gone nowhere for 15 years. Even a fear of missing rallies is overstated: from the crisis low in March 2009, JPMorgan is up 90 per cent, but so is the S&P 500.
And JPMorgan is one of the better banks. It has outperformed Goldman Sachs by 70 per cent over that same period. What about the 0.8 times price/book ratio? Irrelevant if no one trusts balance sheet asset values and the return on those assets remains bang in line with the bank’s 20-year average of just 0.9 per cent. The reality is that banks need leverage. There is not much point owning them until they can sneakily work out a way of getting some back.
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