JPMorgan: The New King of Wall Street

February 16, 2009

(bettertrades) - On Thursday, April 16th, JPMorgan Chase (JPM) earned a better-than-expected $1.52 billion, or $0.40/share during the first quarter, compared with $2.4 billion, or $0.67/share, in the year-ago period.

Citigroup's (C) rise and precipitous fall, coupled with Bank of America's (BAC) struggles last year, has left JPMorgan as the new leader of the big three banks.

JPMorgan boasts an 11.3% Tier 1 capital ratio (including TARP funds) and tangible common equity of $87.2 billion, both of which will easily satisfy the Treasury's "stress testing".

Q1 revenues climbed to $25.3 billion, compared with $16.89 billion last year, mostly thanks to a $1.61 billion gain at its investment banking unit.

Concerns remain. JPMorgan, along with all the major U.S. banks, is still heavily exposed to a housing market showing little signs of a bottom. The Commerce Department reported that housing starts were floored by 10.8% in March to a seasonally adjusted annual rate of 510,000 units, marking the second lowest pace in 50 years. Profits dropped 10% last quarter amid a $4.2 billion increase in loan loss provision, bringing the total credit reserve buffer at the nation's largest bank to $28 billion.

In addition to rising losses on credit loans, net charge off rates hit 7.7%, up 5.6% from the third quarter, as credit-card defaults are beginning to mount. JPMorgan CFO Mike Cavanaugh expects charge offs to surmount 9% in the near term.

Despite difficulties still facing the financial system, JPMorgan is positioning itself to emerge as the undisputed leader in the U.S. banking space.

Chief Executive Jamie Dimon said JPMorgan has the funds to repay the $25 billion loan received from the U.S. government back in October. Dimon's pronouncement comes after Goldman Sachs (GS) raised $5 billion in new capital to help pay back the $10 billion in TARP funds it received. Dimon made it clear that JPMorgan will not participate in the Treasury's Public Private Investment Plan saying, "We have no intent on using PPIP at all. We don't need it."

Dimon also noted that the bank has augmented its market share across a spectrum of sectors, thanks in part to its acquisition of Bear Stearns in 2008. U.S. banks certainly aren't out of the woods yet, but JPMorgan is clearly positioning itself as the new bully on the block.

Midday on April 16th, JPMorgan shares are trading just below $33/share and have trafficked in a 52-week range of $14.96 - $50.63.