JP Morgan's Consumer & Community Banking (CCB) segment (constituting 39.6% of total net revenues in 2024) serves consumers and businesses through personal service at bank branches and through automated teller machine (ATMs), online, mobile and telephone banking. CCB is organized into Consumer & Business Banking, Mortgage Banking, and Card & Auto. Commercial & Investment Bank (CIB) segment (38.9%) offers a wide range of IB, market-making, prime brokerage, and wholesale payments services to a global client base of corporations, investors, financial institutions, government and municipal entities. The segment also offers lending, wholesale payments, and investment banking services to corporations, municipalities, financial institutions and non-profit entities. Asset & Wealth Management (AWM) segment (11.9%) provides services to institutions, retail investors and high-net-worth individuals. It offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity including money market instruments and bank deposits. The segment also offers trust and estate, banking and brokerage services. Corporate segment (9.6%) consists of Treasury & Chief Investment Office (CIO) and Other Corporate, which includes corporate staff units and centrally managed expenses.
Investment Upsides:
Though the Federal Reserve has started lowering interest rates and signaled more cuts this year, relatively high rates are expected to support JPMorgan's NII and net yield on interest-earning assets as funding and deposit costs gradually stabilize. While NII declined in 2020 and 2021 on near-zero interest rates, the metric witnessed a five-year (2019-2024) compound annual growth rate (CAGR) of 10.1%. This was largely driven by the acquisition of First Republic Bank in 2023 and the high-interest rate regime since 2022. However, higher funding costs hurt the company's net yield on interest-earning assets in 2024. The metric declined to 2.63% last year from 2.70% in 2023. The company projects NII to be almost $94 billion in 2024, up almost 1%, while net yield on interest-earning assets will gradually stabilize. We expect NII (reported) to grow 1% and net yield on interest-earning assets to be 2.67% this year. JPMorgan is expanding its footprint in new regions despite the proliferation of mobile and online banking options. In 2024, the company announced plans to open more than 500 new branches by 2027, of which 150 were built last year. This initiative will solidify its position as the bank with the largest branch network and a presence in all 48 states in the United States. Earlier in 2018, the bank announced plans to enter 25 new markets by opening new branches. In addition to enhancing market share, the strategy continues to help the bank grab cross-selling opportunities by increasing its presence in the card and auto loan sectors. The company also is committed to renovating 1,700 existing locations by 2027-end to serve its customers better. Apart from this, the company launched its digital retail bank Chase in the U.K. in 2021 and plans to expand the reach of its digital bank across the European Union countries. JPMorgan is also focused on bolstering the CIB and AWM businesses in China.
While global deal-making came to a grinding halt at the beginning of 2022, mainly due to the Russia-Ukraine conflict, fears of economic slowdown and high inflation numbers, JPMorgan continued to rank #1 for global IB fees. The trend is reversing of late. In 2024, the company's total IB fees (in the CIB segment) soared 49% after declining 5% in 2023 and 59% in 2022. Further, last year, the company's wallet share was 9.1%. It will likely witness growth in IB fees going forward, driven by a healthy IB pipeline and active merger & acquisition (M&A) market, and leverage its top position to gain further from the changed scenario. Our estimate for IB fees (in the CIB segment) reflect a CAGR of 6.5% by 2027. JPMorgan has been growing through on-bolt acquisitions, both domestic and international. In 2023, the company increased its stake in Brazil's C6 Bank to 46% from 40%, formed a strategic alliance with Cleareye.ai (a financial technology firm focused on trade finance) as well as acquired Aumni and First Republic Bank (an FDIC-assisted deal). In 2022, it acquired Renovite, a 49% stake in Greece-based Viva Wallet and Global Shares. These deals, along with several others, are expected to support the bank's plan to diversify revenues and expand the fee income product suite and consumer bank digitally.
JPMorgan remains focused on acquiring the industry's best deposit franchise and strengthening its loan portfolio. Despite a challenging operating environment, deposits and loan balances have remained strong over the past several years. As of Dec. 31, 2024, the loans-to-deposit ratio was 56%. As interest rates come down gradually, demand for consumer loans (specifically credit cards) and wholesale loans is expected to improve. The company will also be able to capitalize on its scale to record decent loan growth. For 2025, we project total loans and total deposits to grow at the rate of 4.3% and 3.8%, respectively. JPMorgan has a solid balance sheet position. As of Dec. 31, 2024, the company had a total debt of $750.1 billion (the majority of this is long-term in nature). The company's cash and due from banks and deposits with banks were $469.3 billion on the same date. The company maintains long-term issuer ratings A/AA-/A1 ratings from Standard and Poor's, Fitch Ratings and Moody's Investors Service, respectively. Given the favorable factors and earnings strength, JPMorgan will be able to meet debt obligations in the near term even if the economic situation worsens.
Valuation
The Future of Banking: Insights from JP Morgan's Thesis
Investment Risks
JPMorgan's overdependence on the performance of the capital markets to generate fee income is worrisome. The company's market revenues have been volatile over the past several years. While heightened volatility and a rise in client activity during the pandemic period resulted in improved trading performance, there was gradual normalization in the same thereafter. While markets revenues grew 7.3% and 5.8% in 2024 and 2022, respectively, it declined 3.5% in 2023 and 7.1% in 2021. As such, the volatile nature of the business and expectations that it will gradually normalize toward the pre-pandemic level are likely to make growth in the same challenging. Our estimates for fixed-income markets and equity markets show solid improvement this year before growth tapering off in 2026. As mortgage rates remained high in 2022 and 2023, JPMorgan's mortgage fees and related income performance turned dismal. With the demand for mortgage loans and refinancing steadily declining, the metric recorded a negative CAGR of 13.6% over the three years ended 2024. Though the trend reversed in 2024, origination volumes and refinancing activities are less likely to witness solid improvement as mortgage rates are expected to remain on the higher side. Higher mortgage rates will undeniably take a toll on origination and refinancing volumes. Hence, JPMorgan's mortgage fees and related income are less likely to record solid growth in the near term. We expect the metric to decline 13.8% this year.
JPMorgan's asset quality has been deteriorating. While the company recorded negative provisions in 2021, a substantial jump in provisions was recorded in the years after that because of the worsening macroeconomic outlook. The metric surged 169% in 2022, 45.9% in 2023 and 14.9% in 2024. As the interest rates are expected to remain higher for longer, it is expected to hurt the borrowers' credit profile. The company remains vigilant about the effects of continuous high rates and quantitative tightening on its loan portfolio. Hence, the company's asset quality is likely to remain weak. We expect provisions and net charge-offs to rise 28.6% and 28.7%, respectively, in the first quarter of 2025. Steadily rising operating expenses pose a concern for JPMorgan. The company's non-interest expenses witnessed a five-year (ended 2024) CAGR of 7%. This included the FDIC special assessment charge of $2.9 billion incurred in 2023. As the company continues with strategic on-bolt acquisitions and branch expansion efforts and invests in upgrading technology, expenses will stay high. For 2025, management anticipates adjusted expenses to be approximately $95 billion, which includes $18 billion related to technology spending. We expect non-interest expenses to rise 3.7% in 2025, 2.3% in 2026 and 1.4% in 2027.
Guru Activity
The Future of Banking: Insights from JP Morgan's Thesis
JP Morgan shares were not much traded by Gurus in the past quarters. This implies a greater stability that Gurus perceive in JP Morgan despite a lack of clear succession of CEO Jamie Dimon.
Recommendation
JPMorgan has a solid capital distribution plan. Following the clearance of the 2024 stress test, the company announced an increase in its quarterly dividend by 8.7% to $1.25 per share and authorized a new share repurchase program of $30 billion. In February 2024, the company announced a 9.5% hike in quarterly dividends. As of Dec. 31, 2024, almost $19 billion in authorization remained available. Given a strong capital position and earnings strength, the company is expected to sustain current capital distributions. Historically, in the past five years, JP Morgan's stock has traded as high as 16.87X and as low as 7.35X, with a 5-year median of 12.17X. Based on the investment upsides and risks, coupled with the recent earnings, I see a target price of $268, laying out an incredible upside for investors.
