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JPMorgan's (JPM) Ratings and Outlook Affirmed by Moody's

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All the long-term and short-term ratings of JPMorgan (JPM - Free Report) as well as long-term ratings and assessments of its primary banking subsidiary, JPMorgan Chase Bank, N.A., have been affirmed by Moody's Investors Service. Also, the rating outlook remained unchanged at stable.

JPMorgan’s senior debt rating stands at A2. Further, the company’s short-term deposit rating is unchanged at Prime-1.

Here’s Why the Ratings Have Been Affirmed

Moody’s believes that JPMorgan has been consistently enhancing profitability of each of its business divisions – Consumer and Community Banking, Commercial Banking, Asset and Wealth Management, and Corporate and Investment Banking – through improving “the customer value proposition.”

This has provided sufficient strength and scale to each division, and aided the company to earn $42 billion of pre-provision profits in the first three quarters of 2020. Also, this provided sufficient cushion to absorb $15.2 billion rise in JPMorgan’s credit provisions amid coronavirus-induced economic slowdown and adoption of the Current Expected Credit Losses accounting standard.

Moreover, JPMorgan’s business mix offers notable diversification benefits, “providing a sturdy buffer against the greater volatility of the bank's capital markets activity through the cycle.” This capital markets risks are further alleviated by the stability from “wholesale payments and securities service businesses within the investment bank.”

Moody’s is of the opinion that JPMorgan’s client driven business model and footprint expansion have allowed it to capture significant market share in several operations like retail deposits, wealth management, investment banking and secondary trading. Thus, this has not only bolstered the company’s competitiveness but is expected to help sustain earnings stability.

Another factor that has supported JPMorgan’s ratings affirmations is its strong capital and liquidity position. The company benefits from diversified and growing deposit balance, and “the healthy weighted average maturity of its long-term debt.”

Also, as of Sep 30, 2020, the bank’s Basel III fully phased-in CET1 ratio was 13.1% (standardized approach) compared with a requirement of 11.3% (including the Stress Capital Buffer). While the Federal Reserve has prohibited share repurchases till December-end, the rating agency doesn’t expect JPMorgan to substantially lower “capital buffers until pandemic uncertainty is reduced.”

Additionally, Moody's expects that JPMorgan's size, earnings capacity and business diversification will allow it to continue innovating client offerings and maintain competitive edge, “even as digital disruption of banking accelerates.”

What Can Trigger Change in Ratings?

JPMorgan’s ratings might get upgraded if it is able to continue maintaining strong and sustainable earnings growth along with solid capital levels compared with its peers. Also, “a superior track record of risk controls and exemplary regulatory relations” will be among the positives.

However, ratings could be downgraded if the company witnesses substantial worsening of capital or liquidity levels. Further, a marked rise in risk appetite, a major litigation and significant operational risk charge or control failure will impact the company’s ratings negatively.

Price Performance & Zacks Rank

JPMorgan’s shares have rallied 26.2% over the past six months, outperforming 22.4% rise for the industry it belongs to.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rating Actions on Other Banks

Over the past few months, Moody’s affirmed ratings for many banks. Amid the coronavirus pandemic and the resultant economic uncertainties, the rating agency affirmed ratings for PNC Financial (PNC - Free Report) , U.S. Bancorp (USB - Free Report) and Bank of America (BAC - Free Report) .

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