Narrow-moat JPMorgan Chase (JPM) reported decent fourth-quarter results, with net income on a reported basis of $7.1 billion, or $1.98 per diluted share. Results did drop off a bit in the quarter, which was partially expected given some of the drop-off in market-sensitive revenue we have seen at peers, but full-year return on tangible common equity was 17%, and EPS growth was over 40%. This level of ROTE is already on par with management’s long-term goal for the bank, which signals to us that JPMorgan is and has been firing on all cylinders. We believe the bank is already operating at full capacity and do not expect much improvement from here. We do not expect to be making any material changes to our current fair value estimate based on our initial reaction to earnings, but may alter it slightly as we more fully incorporate the results into our model.
If there was one area for potential disappointment, it was the adjusted overhead ratio, which stayed flat year over year for the bank. However, given the massive investments the bank is able to support while also maintaining relative efficiency and returns on equity, we don’t view this negatively. We believe the largest banks, with JPMorgan currently operating as one of the best, are gaining scale advantages by being able to support greater investment for long-term competitive advantages while also maintaining returns and operating efficiency. Therefore, to look only at quarter-to-quarter efficiency ratios would be myopic, in our view.
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Eric Compton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.