Two universal banks with different engines: capital markets and fees against deposits and net interest income.
JPM and BAC are both large US universal banks, but the earnings mix is not the same. JPMorgan earns a larger share from investment banking, trading and asset management — fee businesses that fluctuate with markets. Bank of America leans harder on net interest income from an enormous deposit base, which makes it more directly geared to the interest-rate cycle. For banks the comparison also has to run through the balance sheet, because that is what determines who survives a bad credit year intact.
A universal bank combining consumer banking with the largest investment bank, asset management and payments franchises.
A large consumer and commercial bank with an enormous low-cost deposit base and a substantial wealth management arm.
The standard measure of bank profitability, and the fairest way to compare two institutions of different size and capital structure.
Shows how well each converts deposits into lending profit, and how exposed each is to a change in rates.
The regulatory buffer against losses. It determines both resilience in a downturn and how much capital can be returned to shareholders.
Costs as a share of revenue — the clearest read on operating discipline, and the metric bank management teams are actually judged on.
A deposit-heavy, net-interest-driven bank behaves differently from a fee-heavy one when rates move. Your rate view drives more of the outcome between these two than any valuation difference.
With banks, capital ratios, loan-loss provisions and credit quality matter more than a quarter of earnings. A cheap-looking bank with a thin buffer is not cheap.
Educational only. Not investment advice.
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Both are systemically important and hold heavy regulatory capital. Compare CET1 ratios, loan-loss provisions and the diversity of earnings — a bank with large fee businesses depends less on credit quality than one driven by net interest income.
Bank earnings are cyclical and leveraged, so the market discounts them for the possibility of a bad credit year. Price to tangible book value alongside return on tangible equity is usually a more informative pairing than P/E alone.
Generally the bank with the larger low-cost deposit base and a higher share of net interest income, since deposit costs rise more slowly than asset yields. That relationship reverses when rates fall.
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