JPMorgan or Citigroup?
JPMorgan (JPM) and Citigroup (C) have recovered well from the financial crisis. They’ve generated steady profits in the last few years and strengthened their capital. Both of these banks (XLF) have opportunities to deliver good value to shareholders and produce long-term growth.
Analysts expect future earnings for Citigroup to increase. Many analysts believe that the cycle for the downward trend for banks is over and that investor sentiment will get better on banking stocks. However, recently, we’ve seen JPMorgan being downgraded by major brokerages. Shares of JPMorgan have risen 3% year-to-date, while Citigroup shares have fallen 10%. It seems as though investors are lowering their preference for JPMorgan and moving toward other banks (WFC) such as Citigroup and Bank of America (BAC).
These banks passed the Fed’s stress tests this year in June. They have solid leverage ratios and strong capital bases. While they are comparable in terms of size and product offerings, they do have their differences. Citigroup’s return on equity (or ROE) was the hardest hit at the time of the financial crisis, and the bank nearly collapsed. The only bank among the big four banks to have a lower ROE than Citigroup is Bank of America. This explains the lower price-to-book ratio for Citigroup.
Comparatively, JPMorgan has one of the highest return metrics among the large banks and trades at expensive valuations. It has been considered the strongest among the big banks in the United States for its ability to recover from the financial crisis, its large asset base, and its consistent financial performance.
In this series, we’ll compare JPMorgan and Citigroup on the basis of their 2Q16 earnings, profitability, cost-cutting initiatives, and interest rate sensitivities. We’ll also take a look at their consumer banking businesses and the performances of their trading and investment banking segments. Finally, we’ll look at their dividend payouts, valuations, and analyst ratings.
First, let’s see how these two banks performed in the second quarter of 2016.