JPMorgan Chase & Co. (JPM), Citigroup Inc. (C): The Big Bank I’m Buying Now

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Also on the mass-market front, JPMorgan Chase & Co. (NYSE:JPM) has one of the most dominant credit card businesses. The bank is the No. 1 global issuer of Visa Inc (NYSE:V) cards and issued 6.7 million credit cards in 2012 alone.

But JPMorgan Chase & Co. (NYSE:JPM) shines in many other areas that consumers don’t see as much. Its corporate banking business counts 80% of the Fortune 500 companies as customers and has a presence in 59 countries. Its investment bank was the top fee earner globally in 2012 — yes, ahead of even Goldman Sachs Group, Inc. (NYSE:GS). It also has key franchises in commercial banking, asset management, and private wealth management for ultra-high-worth individuals.

In short, this is a collection of businesses worth owning for the long term. Its stock was already selling at what I believed was a discount, and now it’s simply selling at even more of a discount.

Whoa there, not so fast!
There are risks, here. In rounding up its litigation risk in its most recent quarterly report, JPMorgan Chase & Co. (NYSE:JPM) offered up an improbably large range of possible payouts for the investigations currently ongoing. Specifically, it noted “the estimate of the aggregate range of reasonably possible losses, in excess of reserves established… is from $0 to approximately $6.8 billion.”

You could pilot a freighter through that estimate! My best guess is that the high side was set excessively high to capture the difficulty of trying to estimate these losses. A full $6.8 billion would indeed hurt; that’s certainly a risk. However, it’s worth noting that with shareholder equity of $209 billion and trailing-12-month net income of around $24 billion, a $6.8 billion payout would be more of a ding than a crater for the bank.

The bigger risk from all of this is that the collection of businesses I outlined above is impaired. Should JPMorgan Chase & Co. (NYSE:JPM) be forced to curtail certain businesses, restrict operations in certain countries, or lose key customers as a result of the bad press, that could lead to an impairment much more concerning and long term than a single, large regulatory fine. I think the risk of this happening — at least to an extent that it drastically alters the value of the company — is low, but that doesn’t mean the risk isn’t there.

Taking the plunge
Whether we like it or not, we face risk every time we invest in a company. Sometimes that risk is in plain sight — as we have with the ongoing legal and regulatory risk at JPMorgan Chase & Co. (NYSE:JPM) — and sometimes it’s less obvious. JPMorgan has challenges ahead of it, both in terms of cleaning up current litigation and strengthening operations so it doesn’t face this again in the future.

But assuming worst-case scenarios don’t manifest, the bank’s stock looks like a prime buy today. And that’s why I’m adding JPMorgan Chase & Co. (NYSE:JPM) to my real-money portfolio.

The article The Big Bank I’m Buying Now originally appeared on Fool.com and is written by Matt Koppenheffer.

Matt Koppenheffer owns shares of Goldman Sachs, Bank of America, JPMorgan Chase, and Chevron. The Motley Fool recommends Bank of America, Chevron, Goldman Sachs, Google, Johnson & Johnson, Visa, and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, Google, Johnson & Johnson, JPMorgan Chase, Visa, and Wells Fargo.

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