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Is JPMorgan Chase Too Big to Succeed?

NEW YORK (TheStreet) -- Banks that are doing just banking, such as Prosperity Bank (PB) in Texas and U.S. Bank (USB) in Minneapolis, are doing awfully well these days.

You could congratulate Prosperity for being located in Texas, with branches sitting along the Eagle Ford shale play. But U.S. Bank is in Minneapolis, and it's selling at a price-to-book ratio of 2.13, nearly twice the 1.13 of JPMorgan Chase (JPM - Get Report).

The problem for the big banks isn't banking. The problem for the big banks is brokerage.

Dick Bove is called a "big bank cheerleader" by American Banker. His new book is called Guardians of Prosperity: Why America Needs Big Banks.

But what Bove is defending in his book is mainly the tie between banks and brokerages. As an analyst, Bove is less sanguine about JPMorgan Chase, which announced its earnings this week. He calls himself "a little more cautious" because of its continuing litigation troubles, most of which relate to its brokerage businesses, not its banking businesses. They may have to sell their commodities business, and get out of proprietary trading, he complains.

Of the big banks, Bove much prefers Wells Fargo (WFC), which is doing well with mortgage loans. You know, banking. As opposed to placing bets on the movements of stocks, bonds and commodities, or doing proprietary trading, which to critics is more like taking the depositors' money to the dog track.

The fact is that commercial banking -- selling money for more than you pay for it -- is a very good business. Loaning money to consumers and businesses through mortgages, credit cards and good collateral actually makes money.

This is as true at JPMorgan Chase as it is at regional banks.

Its consumer banking unit, operated as Chase Bank, has been building branches, advertising and taking deposits hand-over-fist. The consumer banking division has average deposits of $461.1 billion and a good reputation. (Chase's consumer bank increased its deposits more than any other bank last year, according to the FDIC survey.) The division is descended from Bank One, the Chicago bank Jamie Dimon ran until JPMorgan Chase acquired it in 2004. It is based in Chicago, not New York.

This kind of banking has created a gusher of earnings as borrowers get better at paying back loans and loan loss reserves are reduced. This is a temporary fix for JPMorgan Chase and the other big banks, since loan loss reserves can be cut only so far. But shouldn't it point the way to a more profitable future, a future of lending money?

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