More Strong Results From JPMorgan

Narrow-moat

After making several changes to our projections, including adjusting our cost of equity for the bank to 9.5%, down from 11%, we are increasing our fair value estimate to $118 per share, up from $106.

While worries seemed to originally be about a flattening yield curve, it is interesting to us that bank stocks have taken such a hit with the yield curve finally steepening. Management stated that a rising 10-year Treasury yield is indeed positive for their earnings, as we would have expected. A steepening yield curve will tend to increase net interest margins as securities yields rise, as well as yields on longer duration loans, such as mortgages. Further, to the extent that the rising 10-year yield represents the market’s view that the economy is likely to be stronger in the future, that would also be a positive for banks.

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