Big Banks

J.P. Morgan & Co.

J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> is a curious animal to place among this herd of banking giants. While it is thought of as a bank, its balance sheet, income statement, and stated goals are that of a merchant bank and securities trading house. Those functions placed it in the past as a member of the money center banking fraternity, but it should be more rightly compared to companies like Lehman Brothers and Salomon Brothers.

While its ROE is subpar to par for a securities-oriented firm, the wide divergence between its ROE and ROA can be directly explained by its high leverage. To push up ROE, it has to take on a lot of debt, making for a riskier proposition than other members of this group. Investors looking at J.P. Morgan might want to consider running the numbers on a competitor such as Bankers Trust to draw further conclusions as to J.P. Morgan's merits.

The Financials

Assets under management grew 23% year-over-year for J.P. Morgan, a strong showing for the company. For the quarter ended in June, net income per share fell from $2.14 one year ago to $1.84 this year. A decline in trading revenues was mostly to blame, as the company's second quarter fell into a sharp, nasty downdraft in equity market indexes in the May-June timeframe. For the latest six months, revenues grew 3.5% while operating expenses rose 11%, bringing six-month EPS down almost 9% from last year, to $3.89.

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