Over the last five quarters, J.P. Morgan’s non-performing loan percentage shows a disturbing trend:
|Quarter||Q4 – 2011||Q1 – 2012||Q2 – 2012||Q3 – 2012||Q4 – 2012|
|Non-Performing Loan %||2.44%||2.82%||2.72%||3.23%||3.12%|
As you can see, though the percentage has decreased sometimes from quarter to quarter, overall the trend is not positive.
So What Now?
If you own J.P. Morgan shares and have the option to jump ship, I would seriously consider doing so. Analysts are calling for 6.45% EPS growth from the bank in the next few years, and this is the lowest growth rate of the banks we have looked at.
On a point to point comparison, Wells Fargo just looks like a better deal than J.P. Morgan. Wells Fargo has a higher yield (2.86% versus 2.54%), faster expected growth (9.1% versus 6.45%), better mix of deposit and loan growth, and a lower percentage of non-performing loans. Since the two banks have P/E ratios of 8.8 for J.P. Morgan and 9.6 at Wells Fargo, this isn’t enough of a discount to consider J.P. Morgan.
Of the two turnaround stories, Citigroup actually seems like the better option. They have better organic growth with 7% growth in both deposits and loans. They also have a lower non-performing percentage, and as they dispose of the Citi Holdings assets, their credit quality will get even better. Bank of America is expected to grow earnings at a faster rate (over 18%), but they are still struggling with consistent loan growth. No matter what option you choose, I would avoid J.P. Morgan. The two worries of negative loan growth and diminished credit quality are significant. Until the bank can get these issues under control, there are better options, and investors should look elsewhere.
The article 2 Problems Show This Bank Is Slipping originally appeared on Fool.com and is written by Chad Henage.
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