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JPMorgan Chase & Co. (JPM), Ally Financal Inc (GMA), Citigroup Inc (C), M&T Bank Corporation (MTB): Can These 4 Banking Giants Make You Money?

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JPMorgan Chase & Co. (NYSE:JPM), Ally Financal Inc (NYSE:GMA), Citigroup Inc (NYSE:C), and M&T Bank Corporation (NYSE:MTB) are among the nation’s top banks that have survived recessions of the past and pledge to protect their customers through good and the bad. While these banks have a history as America’s banks, it is unclear whether they have futures as bright as their pasts. Should you keep your accounts active with the bank heavy-hitters, or should you invest in profitable banks that aren’t as glamorized by history?

JPMorgan Chase & Co. logoNot great, but not bad

JPMorgan Chase & Co. (NYSE:JPM) is the largest commercial bank in America, and among the largest in the world, with assets of nearly $2.4 trillion. Not many years ago, it was also thought of as America’s smartest bank, somehow rising above the banking carnage that littered the banking landscape late last decade. But, in the last 12 months, JPMorgan Chase & Co. (NYSE:JPM) has more than made up for lost time in the “bad news” department.

In addition to the massive, $6 billion trading loss known as the “London Whale,” JPMorgan Chase & Co. (NYSE:JPM) has been the subject of numerous money laundering claims, additional lawsuits for mortgage fraud, and substantial executive turnover, all of which goes not toward whether JPMorgan Chase & Co. (NYSE:JPM) can earn money, but rather, that it has the same sorts of internal challenges that affect all large money center banks.

In its first quarter, JPMorgan Chase & Co. (NYSE:JPM) reported earnings of $6.5 billion, or $1.59 per share, a record first quarter for the company, compared to $4.9 billion in the first quarter of 2012.  But, it’s not quite what it seems. While profits were a plum $0.20 per share above analysts’ expectations, they were enhanced by reserve provision reversals of $1.15 billion from the year earlier, and lowered reserve provisions of another $110 million from the first quarter of 2012. With reserve manipulations accounting for nearly a quarter of the bank’s profit, the underlying business is still suffering from the same sluggish loan growth affecting all banks. JPMorgan has enough excess reserves to carry through similar profit numbers for a couple more quarters, but perhaps it would be better off building capitalization. In this year’s Federal Reserve Stress Test, under the adverse hypothetical scenario, JPMorgan fared nearly the worst among the 15 banks tested.  Helping to depress that common capitalization down to 5.3% is that JPMorgan was allowed a $6 billion share buyback program, and a 27% dividend hike up to a quarterly $0.38 per share. These capital returns were awarded with the caveat that JPMorgan would clarify certain elements of its capitalization by the third quarter of this year.

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