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JPMorgan's (JPM) Outlook Upgraded by S&P, Ratings Affirmed
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JPMorgan’s (JPM - Free Report) outlook has been upgraded to positive from stable by S&P Global Ratings. However, the A-/A-2 ratings of the holding company and the A+/A-1 operating company ratings have been kept unchanged.
The strength of JPM’s extensive lending-to-trading business, which has outperformed its peers, is the primary reason behind the outlook upgrade. In 2023, the company’s performance exceeded most of its peers, reflecting its business strength and prudent balance sheet management. The rating agency believes that the Wall Street giant is well poised “to deliver peer-leading results under various macroeconomic scenarios.”
JPMorgan remains focused on acquiring the industry's best deposit franchise and strengthening its loan portfolio. Despite a challenging operating environment, its loans and deposit balances have been strong over the past several years. As of Dec 31, 2023, JPM’s loans-to-deposit ratio was 55%. Though a potential economic slowdown might hamper wholesale loan demand to some extent, the company is expected to be able to capitalize on its scale to record decent loan growth, going forward.
JPM’s dominant position in the market enables it to generate a high level of pricing power, client selection and economies of scale (more than any other international bank).
The company keeps expanding its footprint in new regions despite the proliferation of mobile and online banking options. In February 2024, it announced plans to open more than 500 branches by 2027. With the addition of these branches, the company will further solidify its position as the bank with the largest branch network and a presence in all 48 states in the United States.
In 2018, JPM announced plans to enter 25 markets by opening new branches. In addition to enhancing market share, the strategy will continue to help the bank grab cross-selling opportunities by increasing its presence in the card and auto loan sectors.
JPMorgan’s inorganic expansion efforts remain impressive and will likely keep aiding its top line. Last year, 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), and acquired Aumni and First Republic Bank (the company’s financial strength enabled it to acquire First Republic from the FDIC at an attractive price).
These deals, along with several others, are expected to keep supporting the bank's plan to diversify revenues, and expand the fee income product suite and consumer bank digitally.
JPMorgan’s net interest income (NII) and net yield on interest-earning assets have been improving over the past few years on higher interest rates. While NII declined in 2020 and 2021 on near-zero interest rates, the metric witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 10.1%. Likewise, the net yield on interest-earning assets improved to 2.70% in 2023 from 2% in 2022 and 1.64% in 2021.
According to the rating agency, while the Federal Reserve is expected to cut interest rates in the second half of this year, JPM’s profitability will decline only modestly in 2024. It projects the company’s NII to remain relatively flat.
Further, JPMorgan has one of the highest CET1 ratios among U.S. global systemically important bank peers. The company’s liquidity buffer also remains robust.
The rating agency also said that despite its size and complexity, JPM has thus far successfully avoided significant regulatory issues and trading losses in the last decade.
The positive outlook reflects S&P Global Ratings’ expectation that JPM will continue to earn peer-leading returns with limited asset quality problems, and robust balance sheet metrics, including maintaining solid capital ratios. Also, the rating agency is of the opinion that regulatory or legal issues will not arise in the next two years for JPMorgan.
Over the past three months, JPM shares have gained 16.1%, outperforming the industry’s 14.1% growth.
Now, let’s take a look at JPMorgan’s Commercial Real Estate (“CRE”) exposure.
While CRE remains a major risk factor across the banking industry, JPM’s exposure to the same remains manageable. JPMorgan’s CRE loans constitute only 10% of its loan portfolio.
Thus, per S&P Global Ratings, JPM is expected to absorb the expected deterioration in asset quality, supported by its earnings capacity.
Notably, because of concerns related to exposure to CRE loans, the outlook on five regional banks in the United States were downgraded to negative from stable by S&P Global Ratings a couple of days ago. The firms in consideration are First Commonwealth Financial Corporation, M&T Bank Corporation (MTB - Free Report) , Synovus Financial Corp. (SNV - Free Report) , Trustmark Corporation and Valley National Bancorp (VLY - Free Report) .
After the collapse of Silicon Valley Bank and Signature Bank in early March 2023 (which sparked the regional banking crisis, leading to deposit flights despite regulators’ emergency actions to shore up confidence), investors started getting concerned over regional banks’ CRE exposure. CRE became an area wherein borrowers were at increased risk due to high interest rates and low occupancies.
The move by S&P Global Ratings to lower the outlook on MTB, SNV, Trustmark, VLY and First Commonwealth because of their CRE exposure has renewed investors’ concerns regarding the health of the industry.
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JPMorgan's (JPM) Outlook Upgraded by S&P, Ratings Affirmed
JPMorgan’s (JPM - Free Report) outlook has been upgraded to positive from stable by S&P Global Ratings. However, the A-/A-2 ratings of the holding company and the A+/A-1 operating company ratings have been kept unchanged.
The strength of JPM’s extensive lending-to-trading business, which has outperformed its peers, is the primary reason behind the outlook upgrade. In 2023, the company’s performance exceeded most of its peers, reflecting its business strength and prudent balance sheet management. The rating agency believes that the Wall Street giant is well poised “to deliver peer-leading results under various macroeconomic scenarios.”
JPMorgan remains focused on acquiring the industry's best deposit franchise and strengthening its loan portfolio. Despite a challenging operating environment, its loans and deposit balances have been strong over the past several years. As of Dec 31, 2023, JPM’s loans-to-deposit ratio was 55%. Though a potential economic slowdown might hamper wholesale loan demand to some extent, the company is expected to be able to capitalize on its scale to record decent loan growth, going forward.
JPM’s dominant position in the market enables it to generate a high level of pricing power, client selection and economies of scale (more than any other international bank).
The company keeps expanding its footprint in new regions despite the proliferation of mobile and online banking options. In February 2024, it announced plans to open more than 500 branches by 2027. With the addition of these branches, the company will further solidify its position as the bank with the largest branch network and a presence in all 48 states in the United States.
In 2018, JPM announced plans to enter 25 markets by opening new branches. In addition to enhancing market share, the strategy will continue to help the bank grab cross-selling opportunities by increasing its presence in the card and auto loan sectors.
JPMorgan’s inorganic expansion efforts remain impressive and will likely keep aiding its top line. Last year, 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), and acquired Aumni and First Republic Bank (the company’s financial strength enabled it to acquire First Republic from the FDIC at an attractive price).
These deals, along with several others, are expected to keep supporting the bank's plan to diversify revenues, and expand the fee income product suite and consumer bank digitally.
JPMorgan’s net interest income (NII) and net yield on interest-earning assets have been improving over the past few years on higher interest rates. While NII declined in 2020 and 2021 on near-zero interest rates, the metric witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 10.1%. Likewise, the net yield on interest-earning assets improved to 2.70% in 2023 from 2% in 2022 and 1.64% in 2021.
According to the rating agency, while the Federal Reserve is expected to cut interest rates in the second half of this year, JPM’s profitability will decline only modestly in 2024. It projects the company’s NII to remain relatively flat.
Further, JPMorgan has one of the highest CET1 ratios among U.S. global systemically important bank peers. The company’s liquidity buffer also remains robust.
The rating agency also said that despite its size and complexity, JPM has thus far successfully avoided significant regulatory issues and trading losses in the last decade.
The positive outlook reflects S&P Global Ratings’ expectation that JPM will continue to earn peer-leading returns with limited asset quality problems, and robust balance sheet metrics, including maintaining solid capital ratios. Also, the rating agency is of the opinion that regulatory or legal issues will not arise in the next two years for JPMorgan.
Over the past three months, JPM shares have gained 16.1%, outperforming the industry’s 14.1% growth.
Image Source: Zacks Investment Research
Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Now, let’s take a look at JPMorgan’s Commercial Real Estate (“CRE”) exposure.
While CRE remains a major risk factor across the banking industry, JPM’s exposure to the same remains manageable. JPMorgan’s CRE loans constitute only 10% of its loan portfolio.
Thus, per S&P Global Ratings, JPM is expected to absorb the expected deterioration in asset quality, supported by its earnings capacity.
Notably, because of concerns related to exposure to CRE loans, the outlook on five regional banks in the United States were downgraded to negative from stable by S&P Global Ratings a couple of days ago. The firms in consideration are First Commonwealth Financial Corporation, M&T Bank Corporation (MTB - Free Report) , Synovus Financial Corp. (SNV - Free Report) , Trustmark Corporation and Valley National Bancorp (VLY - Free Report) .
After the collapse of Silicon Valley Bank and Signature Bank in early March 2023 (which sparked the regional banking crisis, leading to deposit flights despite regulators’ emergency actions to shore up confidence), investors started getting concerned over regional banks’ CRE exposure. CRE became an area wherein borrowers were at increased risk due to high interest rates and low occupancies.
The move by S&P Global Ratings to lower the outlook on MTB, SNV, Trustmark, VLY and First Commonwealth because of their CRE exposure has renewed investors’ concerns regarding the health of the industry.