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Well-Positioned JPMorgan Chase Still Stymied

The company in February 2009 cut its quarterly dividend on common shares to 5 cents a share from 38 cents, "to retain an additional $5 billion in common equity per year," and then in June 2009 raised $5 billion in common equity, after which it fully repaid the TARP money.

JPMorgan began raising the quarterly dividend on common shares to 25 cents in April 2011. The dividend during the second quarter was raised back to its old level of 38 cents a share.

The company set earnings records during 2010, 2011 and even in 2012, when it earned $21.3 billion, or $5.20 a share, despite the losses of at least $6.2 billion from the "London Whale" hedge trading debacle.

Solid Performance In the Wake of the Crisis

Looking back, only Wells Fargo (WFC - Get Report) among the "big four" U.S. banks has outperformed JPMorgan Chase in the wake of the crisis:
  • From 2008 through 2012, Wells Fargo's return on average assets (ROA) ranged from 0.44% to 1.41%, according to Thomson Reuters Bank Insight. Its return on average tangible common equity (ROTCE) over the same period ranged from 7.15% to 16.32%. Leaving out the "bad year" of 2008, Wells Fargo's lowest ROA over the period was 0.97% in 2009 and its lowest ROTCE was 14.89% in 2010.
  • JPMorgan Chase's ROA over the past five full years ranged from 0.31% to 0.94%, while its ROTCE ranged from 6.55% to 14.92%. Leaving out 2008, the company's minimum ROA was 0.58% in 2009 and its minimum ROTCE was 10.66%, also in 2009.
  • Citigroup's (C - Get Report) ROA over the past five full years ranged from a negative 1.28% to 0.57%, while its ROTCE ranged from a negative 37.4% to a positive 8.61%. When leaving aside the "worst year" of 2008, the company's lowest ROA was a negative 0.08% in 2009 and its lowest ROTCE was a negative 1.5%, also during 2009.
  • Bank of America's ROA has ranged from -0.09% to 0.26% over the past five years, while its ROTCE has ranged from -1.62% to 5.59%. The negative figures are both from 2010, when the company booked a $12.4 billion goodwill impairment charge, set aside $6.8 billion to cover mortgage repurchases losses and also recorded $2.6 billion in litigation expenses.

Stock Valuation and Opportunity

Despite having pretty much sailed through the credit crisis, JPMorgan Chase is the cheapest of the "big four," on a forward price-to-earnings bases. The bank's shares closed at $50.53 Friday and traded for 8.3 times the consensus 2014 earnings estimate of $6.11, among analysts polled by Thomson Reuters.

Citigroup's shares closed at $48.33 Friday and traded for 8.9 times the consensus 2014 EPS estimate of $5.6. Wells Fargo closed at $41.08 and traded for 10.2 times the consensus 2014 EPS estimate of $4.02.

The most expensive of the group is Bank of America, with shares closing at $14.12 Friday and trading for 10.4 times the consensus 2014 EPS estimate of $1.36.

The continuing flow of sometimes brutal headlines aside, JPMorgan's historically cheap valuation, even after three years of record earnings, speaks for itself. The investigations and lawsuits can't go on forever, and the company has several strong businesses that will keep bringing in massive revenue.

Even Bank of America has been able to rehabilitate its reputation.

It also pays to keep in mind that even the valuation for the currently high-flying Bank of America is historically cheap. The largest U.S. banks were easily trading for 20 times earnings before the real estate bubble burst.

If JPMorgan's P/E ratio was to rise to the level of Bank of America's, investors would be looking at a gain of 26%. And over the very long term, with solid operating earnings and capital, leading to rising dividends and share buybacks, investors may look back in five years and realize they had seen a golden opportunity.

JPM Chart JPM data by YCharts

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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