Banking

The number of J.P. Morgan active mobile customers has more than tripled since 2010. As a result, the bank is adapting its digital capabilities.

Consumer and Community Banking is the biggest of J.P. Morgan’s four segments. Corporate and Investment Banking follows, with 34% of revenues.

In this series, you’ll learn what value J.P. Morgan holds for its shareholders, about its various businesses, and how it compares with other big banks.

SunTrust Bank’s net interest income in 2014 remained stable compared to 2013 as strong loan growth offset the decline in net interest margin.

The industrywide loan-to-deposit ratio has declined over the last few years, largely due to the increase in non-interest-bearing bank deposits.

Lower funding costs determine a bank’s net interest margin. A bank has funding cost advantage when it pays less interest on borrowed funds and deposits.

Interest income typically contributes more than 60% to a bank’s total operating income.

Marketing initiatives at Home Depot include Pro Xtra. This program exclusively targets professional customers.

BB&T Corporation (BBT) is a financial holding company. It conducts its operations primarily through its bank subsidiary—Branch Bank.

Investment-grade bonds are both U.S. Treasuries issued by the U.S. Treasury Department and corporate bonds issued by high-quality corporate borrowers.

PNC stock was trading at a PBV ratio of 0.75 in November 2012. Since then, the stock has seen a smart move up and trades at a PBV multiple of ~1.08.

PNC Bank has done a good job at reducing its non-interest expenses, but the bank’s efficiency ratio still remains above 60%.

Regions Financial Corporation is a leading regional bank in the southeastern US. It’s the 17th largest bank in the US—based on assets.

Capital One is organized into subsidiaries. Capital One’s principal subsidiary is a limited purpose credit card bank. It’s chartered in Virginia.

Capital One’s history is shorter than other banks. In 1994, Signet Financial Corp. spun off its credit card business into a separate subsidiary—Capital One.

How does BlackRock compare to its peers? BlackRock faces major competition from State Street and Vanguard.

The two main types of banking assets are loans and securities held.

PNC Bank’s loan book is skewed toward a few types of loans: commercial and industrial loans and 1–4 Family First Liens, about 44.5% of its total loans.

With a strong presence in the East, South, and Midwest, PNC Bank offers community banking, wholesale banking, corporate banking, and asset management.

Citigroup provides a broad range of financial products and services, including consumer banking, corporate and investment banking, among other things.

Illumina’s outlook is outstanding, as it has posted excellent 3Q14 results and its earnings continue to be bullish.

A bank’s growth can be limited if it doesn’t have enough regulatory capital. If the bank doesn’t have enough capital, it will be forced to dilute its equity to raise capital.

“Strategy” can be defined in many ways. Generally, strategy is a long-term plan. There are two main aspects to strategy—operational level strategy and human resource level strategy.

The bank’s strategy is to not focus on any particular segment of industry. This helps it mitigate risk because the bank’s earnings and delinquencies are not dependent on any particular sector.

Short-term wholesale funding refers to a bank’s use of short-term deposits from other financial intermediaries—like pension funds and money market mutual funds. It uses the short-term deposits to invest in longer-term assets—like loans to businesses. Using these short-term funds to invest in longer-term assets causes a timing mismatch between assets and liabilities.

Basel III addresses most of Basel II and II.5’s deficiencies. But it still has some shortcomings. Firstly, the increased regulatory capital required under Basel III will increase barriers to enter into the sector.

Basel II.5 was essentially a revision of Basel II norms, as the existing norms often failed to correctly address the market risks that banks took on their trading books. Basel II.5’s main aim was to strengthen the capital base, and so the banks’ ability to withstand risk, by increasing banks’ capital requirements.

Basel II was a comprehensive regulation that covered major sources of risks for banks. But it had a few major drawbacks. Firstly, it provided incentive to a bank’s management to underestimate credit risk.

Capital ratio is also known as capital adequacy ratio or capital-to-risk-weighted assets ratio. Capital ratio is nothing but the ratio of capital a bank has divided by its risk-weighted assets. The capital includes both tier one and tier two capital.

Capital is important because it’s that part of an asset which can be used to repay its depositors, customers, and other claimants in case the bank doesn’t have enough liquidity due to losses it suffered in its operations.

The most important types of banking capital are common stock (or shareholders’ equity), preferred stock (or preferred equity), revaluation reserve, general provision, and hybrid instrument.

Banking regulations aim to ensure that the risks are minimized. If any unforeseen event occurs, then the interests of bank customers are protected. On a wider scale, the regulations also seek to absorb and minimize shock in the economy.

We stated earlier that most banks are highly leveraged financial risk-takers. When things go awry, the results can be catastrophic, leading to huge losses or even to a bank closure.

Banking risk can be defined as exposure to the uncertainty of outcome. It’s applicable to full-service banks like JPMorgan (JPM), traditional banks like Wells Fargo (WFC), investment banks like Goldman Sachs (GS) and Morgan Stanley (MS), or any other financials included in an ETF like the Financial Select Sector SPDR Fund (XLF).

Whenever we analyze any banking company, we’re looking at two main variables—the return a bank earns and the amount of risk. To understand any bank, you need to understand these two parameters well.

Historical analysis has shown that return on equity has a strong impact on banks’ value creation in the long run. So financials that have high price-book value ratios should also have high returns on equity.

Custodian banks like a warehouse and store other financial institutions’ and individuals’ assets—they help in keeping financial instruments safe.

The Fed directly influences the short-term yields by either buying or selling short-term Treasuries or affecting the Fed funds rate.

When it comes to changes in the shape of the yield curve, there is no bigger factor driving these changes than the Federal Reserve.

Berkshire Hathaway opened a brand new position in Goldman Sachs that accounts for 2.14% of the investment company’s $104 billion portfolio.