JP Morgan

Q1 2025 earnings season is underway, throughout which I read and analyze lots of earnings calls in order to maintain coverage on our 30+ stock portfolio. Analyzing these calls is an integral part of my research and portfolio management process. As newsletter subscribers you are receiving some of the most notable earnings call notes about once a week.

JP Morgan’s Q1:2025 revenue increased 8%, net income grew 9%, and diluted EPS increased 14% year-over-year. The bank displayed strong operating leverage with its overhead (efficiency) ratio dropping to 52%, down from 54% in the same period last year. Book value per share grew 12% to $119.24 and tangible book value per share increased 13% to $100.36. The bank generated a return on equity (ROE) of 18% and return on tangible common equity (ROTCE) of 21%, which is significantly above its medium-term guidance of 17%. JP Morgan returned $11 billion in the quarter through buybacks and dividends. It repurchased $7.1 billion of stock in the quarter and increased the quarterly dividend 22% to $1.40 (vs the same quarter in the prior year). JP Morgan has increased its dividend for 15 consecutive years. With the stock price at $236, the dividend yield is about 2.4%. With a “fortress balance sheet” and a dividend payout ratio of only 27%, I think the dividend is very healthy and I suspect a long runway of attractive dividend growth.

Encouragingly, JP Morgan increased its full-year 2025 guidance for total net interest income (NII) to $94.5 billion (up from $94 billion), but maintained expense guidance at $95 billion indicating that it thinks growth in its other lines of business can offset possible declining interest rates (market is currently pricing in 3 interest rate cuts by the Federal Reserve in 2025), and that it will continue to operate the business extremely efficiently.

JP Morgan is probably the best managed and strongest, best capitalized, systemically-important bank in America. It is growing market share across its businesses and should continue to compound its EPS, book value per share, and the dividend at attractive rates for a long time. It has a fortress balance sheet with a CET1 Capital Ratio of 15.4% (compared to its target of 14%), $1.5 trillion of cash and marketable securities, and $558 billion of total loss absorbing capacity. Given the geopolitical and economic uncertainty brought on by the trade war, JP Morgan increased reserves (for bad loans) by $973 million in the quarter, and the bank is now reserved for a scenario of 5.8% unemployment (meaningfully up from the most recent reading of 4.2%). If the economy deteriorates, JP Morgan will increase reserves even further, but at this time the increased reserves are because of increased uncertainty and not because of a deterioration in the current loan book.

When we enter a recession, and I expect recessions to come every few decades, I sleep well owning JPM and Mastercard. These are resilient businesses under any market conditions. JP Morgan (and some other money-center banks) are over-capitalized as they wait on final regulations from Basel III Endgame. If JP Morgan’s stock falls, I’m confident that Jamie Dimon (who I think is one of the best CEO’s of our lifetime) will ramp up share repurchases, which will accelerate intrinsic value per share growth. And if a recession is severe, Dimon could not only ramp up buybacks ever further, but could also possibly acquire a competing franchise at a give-away price like he did with Barclays during the Global Financial Crisis (GFC) and First Republic during the mini banking crisis in 2023. JP Morgan has a long history of buying back stock at cheap prices and using downturns/crisis to its advantage to plant the seeds for long-term market share gains and business growth coming out the other side. And remember that its diversified revenue model (consumer/community banking, commercial banking, investment banking and trading, and asset/wealth management) allows it to provide critical services and capture value across all parts of the economic cycle.

Yes, the stock trades at 2x book value (a level that is traditionally thought of as rich for a bank), but let’s not forget that JP Morgan bought back $7.1 billion of stock in the quarter indicating that Jamie Dimon thinks the stock is attractive enough to buy in at these level (he is very valuation dependent with buybacks). So, I think that’s an encouraging sign. Additionally, I think Jamie Dimon is one of the great owner-operators of our lifetime and that under his leadership JP Morgan is a wonderful, growing business with a low risk profile that serves a crucial economic need under the supervision of regulators. And given its diverse revenue streams beyond traditional banking (in Q1:2025 roughly half of its revenue came from non-interest revenue) I think P/E is a more appropriate valuation metric (or at least that P/E should be used in conjunction with P/B). Given the quality of its business and leadership in a regulated industry, I think it should be valued at a P/E ratio closer to that of a top-tier, high-quality U.S. regulated utility. In other words, JP Morgan trades at a NTM P/E of less than 13x, and I think it deserves a P/E of at least 15x to 17x.

Key Quotes from Q1:2025 Earnings Transcript: “This is to make you feel comfortable, not uncomfortable. When COVID hit, unemployment went from like 4% to 15% in a couple of months. And we had to add to reserves in a two-month period of $15 billion. And then to show you how stupid CECL is, in the three-month -- three-quarter period, we took down the $15 billion. So just that just sizes up a bad recession. If it's a mild recession; it will be less than that. If it's a really bad recession, it will be more than that. Either way, we can handle it and serve our clients. Earnings won't be great. And the stock will go down, which I look at as an opportunity to buy back more stock.”

“The investment that we do in banks, branches, technology, AI is going to continue regardless of the environment. And then we have -- the payment happens to Basel III and CCAR and G-SIB and all that, $30 billion to $60 billion of excess capital. And in the chairman's letter I wrote about what we think of that. But based upon the environment, the turbulence issues, I like having the excess capital. We are prepared for any environment. And that's how we can serve clients. That's not for any other reason. So where we have plenty of capital and plenty of liquidity to get through whatever the stormy seas are.”

“But no matter what outcomes eventually materialize, we are eager to do our part to continue to support our clients, the markets, and the broader economy, and we believe the banking system will be a source of strength in this dynamic environment.”

“I just want to make one brief comment, which is the banking system being a source of strength means what it says. In other words, banks doing their job to support the economy. That's not a statement about bank equity performance and the extent to which banks are cyclical or not. Obviously, a recessionary environment, as I've frequently said, all else equal, is bad for banks from an equity performance perspective. We're talking about the financial strength of banks' balance sheets and our ability to support our clients in the difficult moment.”

“And I would say that when we talk about the financial system being a source, the banking system being a source of strength in this environment, part of what we're talking about is our commitment and willingness to lend through cycles as we've always done in the past and that we have the underwriting capability and the capital and the liquidity and the experience to be reliable lenders and serving our clients no matter what type of environment we're in. So if that means that we have an opportunity to compete incrementally even more effectively in this environment, that will be great.”

“Clearly, the administration has been quite vocal about wanting more pro-growth policies at the margin and for wanting to make it easier for banks to participate more constructively in the economy.”

“Obviously, pro growth is good, pro business is good, pro de-reg is good. I think the best thing to do is to allow the Secretary of Treasury and the folks working with him and the administration to finish as quick as possible the agreements that they need to make around tariffs and with our trading partners.”

“We have sticky inflation. We had that before. I personally have told you I don't think that's going go away, and that relates to that. Obviously, The U. S. Dollar still is the reserve currency, that isn't going to change, though some people may feel slightly differently about it. And the Fed, we've been consistent. There will be a kerfuffle of the Treasury markets because of all the rules and regulations. I've told you that consistently. It happened in COVID. It happened before. It happened. That will happen. And then when that happens, the Fed will step in. That's what happens. And they're not going do it now because you don't have all those issues yet. They'll do it when they start to panic a little bit, and we don't know if and when that's going to happen, and we'll see. But the notion that the ten year Treasury has to go down is a false notion. We look at history in prior times, have huge global deficits. Back in the '70s, in the '60s, the guns and butter, tariffs, at least our economists think, be inflationary to 0.5% or something like that.”

“We look at all the cycles, you know we prepare for a full range of outcomes. Don't personally like predicting what the future is going to hold, But I do I pointed out over and over, there's a lot of issues out there. I think some of those issues you are going to see them resolve for better or for worse in the next four months. So maybe when we're doing this call next quarter, we won't have to be guessing. We actually know what the effect of some of these things was with some predictability and stuff like that. The result in a bank is almost always the same, which is volatile markets, credit losses go up, people get more conservative, investments go down. It looks like a recession. Is it mild or hard? I don't know. But we are I've been quite cautious, and you can see it in our capital, our liquidity, our position, our balance sheet, so we're prepared. But we do all that so we can serve our clients through thick or thin. We're not guessing about what the future is going to hold. Obviously, if you look at our numbers, we have the margins and capability to get through just about anything.”

“The most important thing to me is the Western world stays together economically when we get through all this and militarily to keep the world safe and free for democracy. That is the most important thing. I really almost don't care fundamentally about what the economy does in the next two quarters. That isn't that important. We'll get through that. We've had recessions before and all that. It's the ultimate outcome. What's the goal? How can we get there? And it's literally that. The China issue is a major issue. I don't know how that's going to turn out. We obviously have to follow the law of the land, but it's a significant change we've never seen in our lives.”

“And so I do think if the regulators change regulations, it will free up capital and liquidity to finance the system. And I don't - I wouldn't expect an expense drawdown that you're going to see. There will be thousands -- hundreds of people maybe, but it's not going to be passed on. But it will reduce net-net the cost of liquidity and the cost of loans and the cost of mortgages if it's done right. I specifically pointed out the mortgage issue in my chairman's letter this year about -- if they do some of these reforms, the cost of mortgages come down 70 basis points. If I were them, I'd be focusing on right now. If you have to fix LCR, G-SIFI, CCAR, SLR and I think would free up hundreds of billions of dollars for JPMorgan annually of various types of lending to the system. Some would be market, some would be middle market loans, et cetera. And I pointed out, if you wanted to look at the big numbers, that loans to deposits are now 70% for the banking system large. That used to be 100%. And the reason for that is it's not just capital. It is also LCR. It is also G-SIFIs. And the question you should ask because you were very smart, Mike, is could you have the same -- and I believe you have a safer system, lend more money, have more liquidity, eliminate bank runs, eliminate what happen to the First Republic or Silicon Valley, and you could accomplish all of that with completely rational and thoughtful regulations. That's what I would like to see them do. I don't know what's going to happen.”

“Yeah, I honestly add that [JP Morgan’s international business] to the list of worries. We will be in the crosshairs [during a trade war]. That's what's going happen. And it's okay. We're deeply embedded in these other countries, people like us, but I do think some clients or some countries will feel differently about American banks. And we'll just have to deal with that.”

“I think the management thing is very important. I always talk about good expenses and bad expenses, and the good expenses are the bankers and branches that we think will pay off. But there are also bad expenses, which I would put in the category of bureaucracy, lack of efficiency, things you don't need to do. And if you go to if you read my Chairman's letter, the last section is called Management Learnings, and if you look at companies that over time fail, it's almost always bureaucracy, complacency, arrogance, and lack of attention to detail. And so there is, we're making a I say a but I'm mad at myself for not doing it sooner to spend a little more time that after COVID, the buildup in headcount, the buildup in rules and regulations, the people working or not working from home, After all of those things, we just think there's more efficiency here. And I think some of that Mike Mayo mentioned the thing about regulation, he is right, there will be reductions in cost because rules and regulations will be modified a little bit. I pointed out resolution recovery, which is a complete waste of time, is 80,000 pages long. It will never happen that way. CCAR, which is virtually a waste of time, is 20,000 pages long. Okay? We report a trillion think it's a trillion bits of data every day or something like that to all the various regulators and stuff like that. There is this excessive cost built up that hopefully we can get rid of and reduce the cost of the system, but it's not the brand new branches. And the folks here are working on what we call streamlining. Jim Pietzsche has got a war room going on it. We already have a significant amount of saves and stuff like that. And we're having fun doing it. To me, it's like exercising and eating your spinach. It's what we should be doing. We haven't done it for a while, I apologize to my shareholders for not having done this a little bit sooner.”

JPM is on top of my watchlist right now. Access my complete watchlist in our community.

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